In this post we’re going to examine a growing conflict between the electoral quirks of the European Union’s democratic system and Angela Merkel’s vision for and ‘ever closer Europe’. As we’ll see, hopes were high that this year’s EU elections would include the first ever indirect vote for European Commission President. Under the proposed plan, if a party manages to win the parliament that party’s “presidential” candidate would automatically be selected head of the EU Commission President. If implemented, this plan would be quite a departure from the weeks of backroom dealing between national leaders that has chosen the president in the past. And as we’re also going to see, Angela Merkel has BIG PLANS of her own for the European Commission: Lots of new powers and a big transference of national sovereignty to the Commission are all on the agenda. But it doesn’t look like the plan to allow voters to have even an indirect vote on the person that would be implementing this agenda will be allowed. Not if Angela has anything to say about it.

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If you’ve been following the upcoming EU elections scheduled for later this month, you’ve no doubt heard about the tight race for EU Commission President pitting former Luxembourg prime minister Jean-Claude Juncker against outgoing EU parliament president Martin Schulz. And if you’ve been closely following that race between Juncker and Schulz, you’ve no doubt been bored out of your mind:

Top EU election candidates struggle to find differences

By Paul Taylor

PARIS Wed Apr 9, 2014 10:14pm BST

(Reuters) – The top two rival candidates to lead the European Commission struggled on Wednesday to find real policy differences in the first live television debate ahead of European Parliament elections next month.

Centre-right Jean-Claude Juncker and Social Democrat Martin Schulz – whose native languages are Luxembourgish and German – argued politely in French over the appropriate balance between budget austerity and investment to promote economic growth in a 50-minute debate on France 24 television.

But they agreed far more often than they disagreed in a pro-European consensus that may be exploited by anti-EU populists of the far right and hard left, who blame policies made in Brussels for the continent’s economic crisis and mass unemployment.

Juncker, 59, the veteran former Luxembourg prime minister and chairman of euro group finance ministers, stressed the need to maintain tight control of public finances and said he could see no grounds to give France more time to reduce its deficit.

“France has already had two extensions to its period of adjustment. A priori there is no obvious reason why it should get a third one,” he said, while noting that the European authorities would study France’s budget plans before deciding.

“We cannot accept a pause in budget consolidation.”

Schulz, 58, the outgoing president of the European Parliament, hit back, saying new French Prime Minister Manuel Valls had announced a courageous and ambitious reform programme in parliament on Tuesday.

“If he needs support from the European Commission, he should get that support,” the Socialist candidate said, noting that France is the euro zone’s number two economy and was now ready to make necessary economic reforms.

France has promised to bring its budget gap, now at 4.3 percent of national income, below the EU treaty limit of 3 percent by the end of 2015. But the new government has hinted it will seek a slower pace of deficit reduction to preserve growth.

“WHAT DISTINGUISHES YOU?”

Schulz said Juncker and other mostly conservative leaders in charge of the European institutions at the outbreak of the euro zone debt crisis had misdiagnosed the problem by prescribing strict austerity, forcing millions out of work.

“This theory that unilateral spending cuts would restore investors’ confidence manifestly didn’t work. We have had to change course in recent years,” he said.
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Note that when Martin Schulz says “his theory that unilateral spending cuts would restore investors’ confidence manifestly didn’t work. We have had to change course in recent years”, he is completely rejecting the premise behind the “Confidence Fairy” theory of economics that has been used to justify EU austerity since 2008. So that was actually a pretty massive admission.

Continuing…

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Europe needed more strategic investment in research, education and innovation to get 28 million unemployed EU citizens, including more than half of young people in some countries, back to work, he added.

Both described Germany as the most successful economic model for Europe. Both said Europe should do more to welcome legal immigrants and it was up to national government to prevent any abuse of their welfare systems by migrants.
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Note that when both candidates describe Germany as the most successful economic model for Europe, it’s sort of like saying every region of the US should strive to replicate Silicon Valley’s economy. It’s a nice thought, but is that really a solution for Europe? Can every country become a high-tech export-oriented powerhouse?

Skipping down…

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The European Parliament insists that the leader of the political group that wins the most seats in the May 22-25 direct elections in the 28 member states should be chosen to lead the executive Commission. However, the EU treaty says it is up to the European Council of national leaders to nominate a candidate taking account of the elections and after holding consultations.

With Eurosceptical Britain and some others opposed to both Juncker and Schulz, seen as old-style European federalists, it is not clear whether either will get the nomination.

At one point, one of the presenters asked the candidates: “What distinguishes you from each other?”

There was an embarrassed pause before Schulz said: “I don’t know what distinguishes us… The EPP candidate (Juncker) is quite close to my programme, but whether the EPP is so close is another question.”

Juncker played up his own long experience of European leadership, saying twice pointedly, “when I was in the European Council, which Mr Schulz wasn’t, allow me to explain to him…”

Schulz countered by saying the European Parliament had warned EU leaders from the start of the crisis that their policy mix was wrong.

Well, at least it sounds like there are some differences between the two main candidates: Jean-Claude Juncker continues to openly embrace the discredited economic theories that tanked the EU’s economies in recent years whereas Martin Schulz doesn’t seem to eager to continue the madness. That’s actually good news for the EU because if Schulz eeks out a win we might actually see an end to the austerity madness (or, more realistically, a bit of an easing).

The above article is from a month ago and now EU the elections are just weeks away. So have any new distinctions between the two people most likely to head the EU for the next five years cropped up over the past month? Not really:

Time to relax austerity? Candidates for EU’s top job divided
Social democrat Schulz would loosen rules for struggling countries, while conservative Juncker rules out softer stance

Ian Traynor
theguardian.com, Thursday 8 May 2014 08.24 EDT

The two key figures leading the European election campaign in the hope of becoming the next head of the EU executive are split on how to recover from Europe’s worst-ever crisis – the debt and currency turmoil of the past five years that almost brought the collapse of the euro.

Martin Schulz, the German president of the European parliament who leads the social democratic campaign, said struggling countries such as Italy and France should be given more time to get their public finances in order, and also called for a loosening of the single currency’s rules on debt and deficits.

Jean-Claude Juncker, the former prime minister of Luxembourg who leads Europe’s conservative Christian democrats in the contest, ruled out relaxing the rules for the centre-left governments in Rome and Paris.

In a campaign debate chaired by the Guardian and four other European newspapers, Juncker stuck to the German-led austerity prescriptions that have strangled large tracts of southern Europe and generated mass unemployment, while Schulz attacked that approach as too dogmatic and inflexible.

Schulz said: “The crisis was reinforced by the thesis that you have only to clean up budgets to win back investor confidence and economic growth. The main approach in Europe was austerity policies …

“This thesis does not work. You take draconian action to reduce debt, but there is no growth.”

Public borrowing for productive investment should be made exempt from debt and deficit calculations in the eurozone, he said, in effect calling for a loosening of the debt and deficit ceilings from 60% and 3% of gross domestic product respectively. “With overall debt levels, we have to define what is actually state debt and what is really investment in the future.”
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Note that when Martin Schulz says public borrowing for productive investment should be made exempt from debt and deficit calculations in the eurozone, he basically acknowledging that government stimulus spending is useful and has a role during a bad economy. While this might seem like Econ 102, this is a huge divergence from the economic thought that has been embedded into the EU’s governing structure ever since the EU member states enshrined the Fiscal Compact treaty in the constitutions. So, should Schulz win, we’ll see if his backing of stimulus spending can overcome the mandates in the Fiscal Compact. It could just be happy talk that’s too little, too late but we’ll see!

Continuing…

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Italy and France probably needed more time than that currently granted by the European commission to get their finances in order, he said. “If they don’t get back on their feet, we all have a common problem … If it turns out they need a year more, I would be prepared to give them an extra year.” He accused “some” EU government heads and EU commissioners of being “completely inflexible” – taking aim at his own chancellor, Angela Merkel.

Juncker, on the other hand, completely rejected being softer with Rome and Paris. “No, no extension of the deadlines,” he said in reference to the Italian and French government obligations to stick to the euro rulebook. “There’s no alternative to reasonable budget consolidation.”
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Again, note how one of the two main candidates for heading the EU wants no easing up on austerity and this is part of his campaign platform! It’s a reminder that much of the EU electorate still embraces austerity (typically only for other nations) even after its disasterous results in recent years. It’s a reminder that the electoral appeal of austerity has little to do with sound economics. Amoral morality plays don’t make for great economic muses.

Continuing…

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Juncker called for a minimum wage across the EU. But both men, seen as federalists and advocates of much greater European integration, said there was no case for common EU social security systems, unemployment insurance schemes, or child benefits.

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Aside from their differences on the merits of austerity, there were few real policy clashes between the two candidates and plenty of common ground. Schulz was more voluble, detailed and thorough in response to questions, Juncker more taciturn.

On the biggest immediate issue confronting Europe on its eastern borders – the Ukraine conflict and what to do about Russia’s Vladimir Putin – Juncker and Schulz were in broad agreement that stiffer economic sanctions against Russia would probably be needed. Representing the German consensus, Schulz was much more emphatic about not isolating Russia and keeping the door open to negotiations.

“Either you have a war – and we have enough military cemeteries in Europe – or you decide on economic sanctions and apply pressure at the same time,” said Juncker. “Pressure alone is not enough, dialogue alone does not work either. But those who find Europe laughable, they must be countered, because Europe is not a lightweight. You have to think about what the alternative would be. If you don’t want war, you have to want sanctions.“

Schulz said that Europe’s credibility would be on the line if the talk of wide-ranging economic sanctions turned out to be posturing. “Economic sanctions are the logical consequence if it is proven that Russia is behind the problems in eastern Ukraine and won’t stop pressuring other parts of its neighbouring regions. But for the sake of its credibility, Europe has to implement them and not just announce them.”

However, substantive economic and trade sanctions against Russia would also hit Europe hard, Schulz warned. With a nod to opinion in Germany, he said the public had to be prepared for the impact of economic warfare.

So when Juncker says “either you have a war – and we have enough military cemeteries in Europe – or you decide on economic sanctions and apply pressure at the same time…Pressure alone is not enough, dialogue alone does not work either. But those who find Europe laughable, they must be countered, because Europe is not a lightweight. You have to think about what the alternative would be. If you don’t want war, you have to want sanctions,” it sure sounds like Juncker is attempting to draw a rhetorical line in the sand with the threat of war behind it without actually specifying where that line exists. Let’s hope this is just about politics.

Still, it looks like we found another rare area of disagreement between the two top EU candidates: Juncker supports aggressive sabre-rattling towards Russia whereas Schulz prefers that the EU only make threats that it can actually back up. So there we go, a difference! Juncker seems much more willing to use the threat of war as a kind of “back up” to the economic sanctions. Assuming this isn’t just bluster on Juncker’s part that’s a potentially big difference!

Continuing…

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While Schulz and Juncker contest the elections at the head of the two main political blocs on the centre-left and centre–right, for much of the EU elite, they are more of a problem than a solution in Europe’s time of troubles.

Both men insisted that if they led their bloc to victory in the elections, they should become the next president of the EU executive, the European commission, from October. Juncker said anything less would be a “mockery of democracy”. Schulz argued that the head of the commission should be elected by the people, just as in any parliamentary democracy, from city mayors to prime ministers, sidestepping the fact that the EU is not a parliamentary democracy.

A commission president has never been elected in the EU. The national leaders claim democratic primacy from their domestic general elections and have always decided between them who should head the commission. They are deeply reluctant to concede that prerogative to the European parliament, but were caught napping by a parliament power play. And the chamber has to endorse the next commission chief by an absolute majority.

The chances of an ugly, paralysing and protracted power struggle between the parliament and the national leaders in the wake of the elections are high. Both Schulz and Juncker may become collateral casualties. The impact on voters’ perception of EU democracy could then be immense, because voters have been told that one effect of their ballot is to decide who heads the commission.

Other names circulating in EU capitals for the top commission job include the Irish prime minister, Enda Kenny, the outgoing Finnish prime minister on the centre-right, Jyrki Katainen, and the Danish prime minister on the centre-left, Helle Thorning-Schmidt.

The outcome, possibly in July, will be strongly determined by the German chancellor, Angela Merkel, who has formally backed Juncker but is known to resent being forced to. “Merkel was outwitted,” said a senior EU diplomat. “But she has options and she will exercise them. Brutally. Anyway, there are very few people except a few in the parliament who believe there is a European demos.”

Schulz conceded there was nothing “automatic” about his securing the commission job even if the social democrats won the election, and admitted he would not have Merkel’s support as the German nominee. But he insisted: “What interests the voters here is whether they can influence the decision-taking through the ballot box.”

>
Woohoo! An unambiguous policy disagreement has been found! Unfortunately, it’s not a disagreement between Juncker and Schulz. They’re both on exactly the same page on this matter. No, it’s a disagreement between Juncker and Schulz on one side and Angela Merkel on the other.

Angela Decides She Enjoys Being the Decider. More Europe? How About More Merkel.
And what’s the disagreement over? It’s a disagreement over who should get to decide who actually become EU Commission President. That’s right, even though Jean-Claude Juncker and Martin Schulz are campaigning to become the head of the EU the system isn’t actually set up to work that way. Voters don’t directly elect their presidents in the EU. And neither does the parliament. No, it’s the “European Council”, which consists of the elected heads of all EU member states, that gets to choose who heads the EU. It’s sort like how the US states selected their Senators before the 17th amendment, but instead of state legislator selecting national senators you have national leaders selecting the single head of the EU executive branch. That’s how the system works, at least for now. And Angela Merkel isn’t too keen on changing it.

And, until last summer, it seemed to many observers that Angela Merkel was fully onboard this vision of a more united Europe. But last summer, Merkel make a strong about face. Brussels has become part of ‘the problem’ in Merkel’s mind, where ‘the problem’ is a wavering will to impose austerity indefinitely:

German conservatives have long been passionate supporters of increased European integration. But lately, Chancellor Angela Merkel has applied the brakes to the process. Brussels, she believes, has become part of the problem.

A party needs two things to win elections: a top candidate and a campaign platform. The European People’s Party (EPP), a collection of conservatives and Christian Democrats in Europe, has neither at the moment. And that has a lot to do with CDU leader Angela Merkel.

Just one year ago, the German chancellor was calling for “more Europe, not less.” But now she has completed a radical about-face. At the EPP summit in the Vienna Kursalon concert hall last Thursday, Merkel showed that she had transformed herself into an EU-skeptic. Her conservative colleagues were left with the impression that the German chancellor now believes that there is too much Europe.

Merkel spoke with notable frequency about the problems associated with choosing a candidate to represent the party on a European level. And in the end, the group made no progress on its platform or on the issue of a candidate.

What is wrong with the CDU leader? The meeting in Vienna coincides with the image of a chancellor who is deviating more and more openly from her party’s traditional positions on European policy. She is increasingly distancing herself from the foreign policy tradition that the CDU, more than any other party, has maintained and upheld since the postwar period.

The contrast between Merkel and Finance Minister Wolfgang Schäuble, who embodies this tradition of Christian Democratic European policy, is also becoming more noticeable. Whether it is the pace of integration, the necessity for changes to European treaties or the direct election of the European Commission president, there are no major issues on which the chancellor and her finance minister are of the same mind.

Never a Passionate Supporter

Merkel, now in her 14th year as party leader, has learned that she must inject a little pathos into her voice when the discussion turns to Europe. She will no doubt do so when she delivers her statement to German parliament prior to the European Union summit this Thursday. And because she is aware of the mood in her party, she did not intervene when the CDU, at its party convention in Leipzig two years ago, approved a position paper that advocated providing Brussels with significantly more power.

But she was never a passionate supporter of such a path. More recently, she has been standing firm against expanding the power of Brussels institutions. And she has been particularly vehement when it comes to anything that might limit the powers held by national leaders such as herself.

Many of her fellow conservatives, of course — particularly those who grew up in West Germany — still believe that Germany must be merged as completely as possible into the European entity. They see it as a natural consequence of the wrongs Germany committed during the Nazi era. Finance Minister Schäuble enthusiastically invokes the “vision of a continent growing more and more strongly together.” He believes that the crisis offers an opportunity to pursue this path more quickly.

Officially, at least, this is the position of the party as a whole. The CDU continues to celebrate itself as champions of European unification and their position papers read as if they had been written by former Chancellor Helmut Kohl, who became teary-eyed when he spoke of the “House of Europe.” “The commitment to Europe is for us both a matter of reason and a matter of the heart,” reads the CDU campaign platform, which was approved on Sunday.

Top party officials have been instrumental in keeping such passion alive. Deputy party leader Ursula von der Leyen, who is Germany’s labor minister, dreams of the continent growing together into a “United States of Europe.” Schäuble came up with the idea of a European finance minister, who would have the power to dictate to the individual countries how much debt they could take on. And if recent CDU resolutions are to be taken seriously, the European Commission president, who is currently appointed by European leaders, will soon be elected directly by the people.
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Notice how Wolfang Schauble wasn’t just an advocate of a directly elected EU president, something that could be seen as a move towards greater democracy compared to the current system of national leaders privately negotiating who gets to be president. Schauble was also floating ideas like creating a European finance minister who would have the power to dictate to the individual countries how much debt they could take on. So, basically, the opposite of democratic empowerment. And this would be in addition to the Fiscal Compact. More on that later.

Continuing..

Individual Countries

For Merkel, however, reason trumps emotion, and her reason has led her for some time now to do everything she can to prevent further steps toward integration and prevent Brussels from gaining more power. She believes that it was precisely the unrealistic passion for a united Europe that led to the establishment of a common European currency which lacked a solid foundation. Vision? In an interview with SPIEGEL three weeks ago, Merkel warned against spending time “on theoretical discussions of how the European structures will look like in 10 or 15 years.” She believes that it makes more sense to tackle the urgent problems of the euro crisis before engaging in complex debates over restructuring the bloc.

Furthermore, Merkel has no intention of taking her party’s resolutions seriously. She wants the EU to work. But when there is trouble, she believes that the individual countries should take the reins, most notably Germany and France. This attitude leads Ruprecht Polenz, one of the CDU’s most respected foreign policy experts, to conclude “that disillusionment is spreading within the party over the issue of Europe.”
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Take a moment to review the description of Merkel’s vision for how the EU should work: When there is trouble, she believed that the individual countries should take the reins, most notably Germany and France?! How is that supposed to be interpretted? Does is suggest that Merkel envisions an EU where the motto is “we’re all in this together, until there’s trouble, and then its every country for itself, so the bigger the better at that point“? Or is it more like “we’re all in this together, until there’s trouble, and then Germany (and France to a much lesser degree) ‘take the reins’ and imposes anti-solidarity austerity“? Or how about a bit of both?

Continuing…

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It has gotten to the point that Merkel feels strong enough to openly confront pro-European elements both in the German CDU and abroad. European Council President Herman Van Rompuy, for example, was supposed to prepare a strategy paper on the future of the EU and present it at the summit this Thursday. But Merkel made it clear to Van Rompuy in January that he could forget about his paper.

Indeed, she has made sure that there will be no groundbreaking resolutions at all when EU leaders meet this week. Van Rompuy’s efforts have been replaced by a document Merkel wrote together with French President François Hollande. Instead of strengthening the existing institutions, Merkel and Hollande merely propose a full-time president for the Euro Group, the group of euro-zone finance ministers that oversee the common currency. Officials in Brussels are outraged. “You can’t be constantly sending Mr. Van Rompuy on trips to address the issue of Europe’s continued development and then suddenly introduce your own paper,” says European Parliament President Martin Schulz, who will likely be the top candidate for the Social Democrats in next year’s European elections.

Part of the Problem

Merkel’s stalling tactics are reigniting the old basic conflict that has accompanied Europe since its founding. For those on the one side, Europe will only make progress if integration and the transfer of power continues to progress. This is the bicycle theory espoused by long-serving European Commission President Jacques Delors: Those who don’t keep moving ultimately fall over. Within the German government, Schäuble is a supporter of this theory.

Merkel, though, believes that Brussels has become part of the problem rather than part of the solution, especially in the euro crisis. The chancellor would like to see European Commission President José Manuel Barroso, in particular, lean more strongly on heavily indebted Southern European countries to tackle domestic reform and get their budgets under control. Instead, he is now saying that the policy of austerity has reached its limits.
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Keep in mind that when Merkel calls for the European Commsision President to lean more strongly on heavily indebted Southern Euopean countries to “tackle domestic reform” (e.g. gut their safety-net and gut government spending), she’s referring to countries that have alread had their governments taken over by a Troika that imposed brutal austerity, so it’s not exactly clear what more Merkel wants from these nations. Love?

Continuing…

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But Merkel’s Europe-skepticism is also driven by self-interest. As a result of the crisis the German chancellor has seen her power increase considerably. When she travels to Brussels for meetings of European leaders, her voice tends to hold the most sway — if only because Germany is the strongest economy in the euro zone. She sees little reason to share her power with, for example, Barroso, a man who she helped maneuver into his current position in 2004.

This also helps explain why she opposes the direct election of the Commission president — a model supported by Finance Minister Schäuble. If European voters were to decide, heads of state and government would have less of a say, a scenario which Merkel would like to prevent. “I’m cautious in this regard,” she said in the SPIEGEL interview. She argues that it is good for equilibrium among the institutions if European leaders are also involved in the decision.
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While the chancellor is applying the brakes, Schäuble raves about a “historic moment of European unification.” The direct election, he says, would be “a real breakthrough for a true European public.”

And he’s not the only one. Indeed, increasing numbers of German conservatives are vexed that Merkel no longer wants to discuss the long-term future of the European Union. “Europe will only emerge from the crisis if we know where we want to go,” says Norbert Röttgen, a CDU member of German parliament and former environment minister. Europe, he adds, needs a new political architecture.

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Spreading Discontent

“We need an answer to the question of where we want to go with Europe,” says European Energy Commissioner Günther Oettinger, who is a long-time CDU member. Oettinger isn’t willing to simply go along with Merkel’s about-face. “The direct election of the Commission president is the goal of the national CDU,” he adds. Deputy CDU Chairman Armin Laschet agrees, saying: “The crisis has shown that we must strengthen European institutions.”

The discontent could soon spread. A rare act of resistance was on display last Friday evening in Arnsberg, a small town near Dortmund. At a meeting of state, federal and European lawmakers from the state of North Rhine-Westphalia, Laschet, the head of the CDU in the state, made no secret of his dissatisfaction with the part of the campaign platform dealing with European policy.

Laschet wants his party to express more concrete prospects for Europe and said that the North Rhine-Westphalia state chapter of the CDU would adopt its own European policy guidelines before September general elections. Laschet seeks to strengthen Brussels on issues such as fighting international terrorism and organized crime, as well as energy policy. He also wants to see the Commission president be elected directly by European voters.

It is a demand that Merkel abandoned long ago.

Now that’s a disagreement, and rather profound one when you look at all the changes that have taken place in recent years and all the potentially fundamental changes that could take place going forward. Angela Merkel appears to be basically rejecting her party’s long term vision for creating a “United States of Europe”. At least that what it sounds like in the above article.

When the Decider Votes, Others Listen
But is she really rejecting the idea of transferring more power to Brussels, or is she merely rejecting transferring additional powers to resist the existing austerity-mandates? If you already managed to get EU members to agree to put a cap on their budgets (the Fiscal Compact), why run the allowing for a popularly elected EU President that has the powers to campaign on an anti-austerity platform and win? Why take that risk when the current system effectively gives Germany’s leader a kind of veto power over who becomes president. If guaranteeing far right economic policies is a top priority for your agenda, why risk that agenda to the whims of democracy?

These are the questions Merkel appears to be grappling with over the past year. And with the elections looming, it’s only a matter of time before we get answers. Well, maybe. It sort of depends on which candidate wins the popular vote. Popular will could definitely prevail, but only if Juncker wins:

BERLIN (Reuters) – Jean-Claude Juncker said on Sunday he had won assurances from German Chancellor Angela Merkel that he would become the next European Commission president if their centre-right bloc wins the European parliamentary elections on May 22-25.

Juncker’s comments, made in an interview with Bild am Sonntag newspaper, contrasted with Merkel’s own suggestion on Saturday that the real choice might be made – as in the past – only after prolonged horse-trading between national governments.

Juncker, a former prime minister of Luxembourg, said he expected leaders of the 28 European Union governments to respect the will of the voters after the election.

“(If they did not) the voters would then know there was no need next time for them to bother voting because the parties would have broken their promises from before the election,” said Juncker, leading candidate of the European People’s Party (EPP).

“That’s why it won’t come to that. The EU government heads will respect the vote,” said Juncker, 59, a long-standing believer in a more federal Europe.

Asked if Merkel, whose Christian Democrats belong to the EPP, had given him a “firm commitment” that he would head the Commission if their bloc wins the election, Juncker said: “Yes, I’ve got that.”

Under the EU’s Lisbon Treaty, the 28 governments must take into account the results of the European elections in choosing a new head of the Commission, the Brussels-based EU executive that proposes laws and polices existing rules and policies.

“MOCKERY” OF VOTERS

However, there is no automatic guarantee that either Juncker or Martin Schulz of Germany, whose centre-left bloc is marginally ahead in opinion polls, will finally get the top job – something Merkel hinted at in her remarks on Saturday.

“It will certainly take a period of several weeks (after the election) before one can come to the necessary decisions,” Merkel said, stressing the complexity of negotiations needed to satisfy both voters and national governments around Europe.

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Echoing Juncker, Germany’s Schulz also warned of consequences if EU government leaders ignored the voters and picked a candidate not on the ballots.

“If the government leaders fiddle and pick another candidate, they would badly damage democracy in Europe,” Schulz told Bild am Sonntag. “It would be a mockery of the voters and then there would be no reason to bother with such elections.”

Sorry EU voters, you got mocked! When you have two candidates- one that’s VERY pro-austerity (Juncker) and one less so (Schulz) – and Merkel says “It will certainly take a period of several weeks (after the election) before one can come to the necessary decisions,” while “stressing the complexity of negotiations needed to satisfy both voters and national governments around Europe”, it sounds like she’s telling you to get ready for “EU President Juncker”. Sure, Juncker is sounding rather war-monger-y these days (but how bad could it be, right?)

Now, take a moment and let this soak in: There are two candidates currently jockeying to become not only the EU Commission President but the first EU Commission President that the EU voters actually voted for(abeit indirectly). So this is a rather historic election. And Angela Merkel completed dissed that entire plan just weeks before the election and everyone knows she did it because the only vote that really matters in the election of the EU Commission President is Merkel’s vote. That’s pretty amazing!

Might Merkel still approve the less austerity-friendly Martin Schulz should he come out on top? Well sure, it could happen. That’s up to Angela.

But if she does end up choosing Schulz, she’s already told us that it will “certainly” be after weeks of negotiations and that raises the question of what kind of promises might have to be made in order to see a “President Schulz”? If winning the popular vote isn’t enough, what other commitments will have to be made to secure Merkel’s blessing? Keep in mind that the reason given in 2013 for Merkel’s sudden opposition to directly electing an EU president were concerns that Brussels wouldn’t be adamant enough about continuing the austerity policies and permanently shrinking social safety-nets. And also keep in mind that Juncker is the only major candidate making this exact pledge right now. So what’s it going to take for Merkel to turn down Juncker and select Schulz, especially if the vote is close? These are rather significant (and somewhat terrifying) questions facing the EU.

Less “More Europe?”
But perhaps an even bigger question facing the EU is whether not this latest poo-pooing of direct democracy indicates that Merkel and the CDU could be planning on turning its back on the entire “United States of Europe” plan, because an “ever closer Europe” has been the vague guiding vision justifying radical changes like the “Fiscal Compact” throughout the financial crisis. Not only has it been the vision guiding the evolution of the EU in recent years, it’s also been the promise. First, the promise goes, comes the banking and fiscal union. And THEN comes the political union. That was the vision back in 2012, before Merkel changed her mind:

Eurozone crisis: United States of Europe may be the only way to save euro
With France and Germany at odds, and events moving quickly, a strategy for fiscal and political union is being drawn up

Ian Traynor, Europe editor
The Guardian, Monday 4 June 2012 14.22 EDT

It is a measure of the speed at which the politics of the euro crisis is changing. Only a fortnight ago all the attention was being lavished on France’s new president, François Hollande, being sworn in in Paris as Monsieur Growth and rushing off on his first assignment to challenge Europe’s Frau Austerity, Chancellor Angela Merkel.

“We need new solutions. Everything’s on the table,” Hollande pledged, meaning he would force Merkel to remove the noseclip and consider things that give off a foul odour in Berlin, foremost among them eurobonds – Germany solving the crisis at a stroke by agreeing to underwrite the debt of Spain, Greece, Italy and all the rest. Fat chance.

By Saturday the growth versus austerity contest had receded as Merkel turned the tables on Hollande.

It was her turn to declare there should be no taboos in grappling with the hard options facing Europe’s leaders as they wait to see what will happen in Greece and Spain, and plot their next moves at what is shaping up to be a momentous summit at the end of the month.

Merkel appeared to be calling not only Hollande’s but France’s bluff. By announcing there could be no censorship of the eurozone to-do list, she meant tabling radical, federalist steps involving gradual loss of national sovereignty over budgetary, fiscal, social, pensions, and labour market policies with the aim of forging a new European political union over five to 10 years.

The USE – United States of Europe – is back. For the eurozone, at least. Such “political union”, surrendering fundamental powers to Brussels, Luxembourg and Strasbourg, has always been several steps too far for the French to consider.

But Berlin is signalling that if it is to carry the can for what it sees as the failures of others there will need to be incremental but major integrationist moves towards a banking, fiscal, and ultimately political union in the eurozone.
…

…
It is a divisive and contested notion which Merkel did not always favour. In the heat of the crisis, however, she now appears to see no alternative.

The next three weeks will bring frantic activity to this end as a quartet of senior EU fixers race from capital to capital sounding out the scope of the possible.

Herman Van Rompuy, president of the European council, Mario Draghi, head of the European Central Bank, Jean-Claude Juncker, Luxembourg leader and longstanding head of the eurogroup of single currency countries, and José Manuel Barroso, chief of the European commission, are to deliver a eurozone integration plan to an EU summit on 28-29 June.

All four are committed European federalists.
…

Notice how Jean-Claude Juncker was part of the “quartet of senior EU fixers” that was tasked back in 2012 to flesh out the “United States of Europe” plan that Merkel was suddenly so keen on promoting back in 2012. While he may not be on the same page with Merkel on the electoral rules for the EU Commssion President, Juncker is strong proponent of “More Europe”.

Before the summit there is a fateful Greek election and French parliamentary polls, while time appears to be running out for the Spanish banking sector. The finance minister in Madrid, Luis de Guindos, says that the fate of the euro will be decided over these weeks in Spain and Italy.

The quantum leap in integration being mulled will not save Greece, rescue Spain’s banks, sort out Italy, or fix the euro crisis in the short term.

The leaders may even run out of time, exhausting the reserves of brinkmanship and last-minute calls that have characterised the “crisis management” of the past 30 months.

But they hope that by unveiling a medium-term strategy for a fiscal and political union in the eurozone they will convince the financial markets of their resolve to save the euro, that the currency is irreversible, and that the heat will be off.
…

Notice how the motive behind Merkel’s sudden 2012 plunge into “United States of Europe” territory was driven by an urgent need to convince financial markets that the euro wasn’t completely doomed. In other words, the intended audience for all the talk about a “United States of Europe” was the financial markets.

So what about that fiscal union? What would that involve? There’s already the “Fiscal Compact” and so many other treaty-based budgetary constraints in place. So how different would a full fiscal union be from what exists today? More of the same, perhaps?

mainly macro
Friday, 2 May 2014The Eurozone: out of the ashes?
Simon Wren-Lewis

I was at a gathering a year or so back in which sensible economists were thinking about the transition path for the Eurozone to full fiscal (and banking) union. They viewed recent events as confirming that monetary union alone was not tenable, and that fiscal union was the way forward. Many share that view. I remember asking whether there was any likelihood that the treaty changes required for fiscal union would find democratic support, given recent events. To say that this interjection was regarded as unwelcome was an understatement.

In one sense this reaction was understandable. Democracy within the Eurozone is a strange thing. On occasions it has been of the ‘last time you voted you got the answer wrong, but don’t worry, we are going to give you a second chance by having another vote’ variety. On others it has been ‘if you vote the wrong way you will have to leave’ type. In these circumstances worrying about democratic opinion and fiscal union may seem beside the point.

But in a way, that is the point. My interjection at that meeting could have been far blunter. How can you be planning to move towards fiscal union when the governance structures of the Eurozone have clearly failed with a more limited set of tasks? That would be a classic economist’s mistake: of designing a set-up which works well in the hands of a benevolent social planner, but falls apart when run by actual politicians.

Take, for example, the ECB. Compared to the US Fed or the UK Bank of England, it comes a poor third. It actually raised interest rates in 2011, making its own contribution to the subsequent recession. It has consistently gone well beyond its remit in promoting certain fiscal policies or structural reforms. It took two years before coming up with OMT, giving us two years of continual crisis. It is only now thinking about QE. A basic problem is that it is not accountable for its actions, which is a serious deficiency for an unelected institution with such power.

The other reason for the 2012 recession was fiscal contraction. If you regard some fiscal contraction in the periphery countries as necessary to correct a lack of competitiveness, then the problem has been the lack of offsetting fiscal expansion elsewhere (not just Germany, but countries like the Netherlands). This has not happened in Germany in part because there is no compelling need within Germany for fiscal expansion: it has been benefiting from the lack of competitiveness of other countries, as its current account surplus shows.

In a fiscal union, fiscal policy is decided at the centre, so these national obstacles to fiscal expansion could be brushed aside. (This, of course, is one good reason why Germans might be rather reluctant to vote for such a union.) But in practice what would aggregate fiscal policy determined in Brussels look like? All the indications are that it would look much like the fiscal policy we currently have: obsessed with debt, and completely ignorant of any significant multiplier effects. The fundamental misunderstandings about fiscal policy that are embedded in German thinking are now deeply ingrained elsewhere.

To make the more general point, if a core problem is with the governance structures of the Eurozone, then handing those structures more power through fiscal union could be a huge mistake. But this realisation seems to leave us in a horrible position: we do not like the place we are in, we cannot and/or should not ‘go forward’ to fiscal union, yet ‘going back’ by leaving the Euro seems too traumatic. (See, for example, Kevin O’Rourke.)
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Note the important point Simon Wren-Lewis just made about the consequences of having a fiscal union in the middle of recession: One of the key problems the EU (and especially the eurozone with its monetary inflexibility) has faced ever since austerity became the default policy solution is that austerity in one part of the EU requires more spending in other countries if you want to avoid a general downward spiral. It’s just math. Currently, there’s no way to force Germany to spend more but that could change under a fiscal union. So it isn’t just a lack a resolve for imposing austerity that folks like Merkel potentially have to fear from a fiscal union. Forced stimulus spending intended to help Germany’s neighbors might also be put on the table. Horror of horrors.

So, as we can see, there are some significant reasons why Merkel may not be so keen the fiscal union, at least not a full blown fiscal union within the context of a “United States of Europe” that includes a directly elected central government. After all, what happens if a European central government is elected on a pro-stimulus platform. *gasp* Wouldn’t that be a complete nightmare for the economically confused? Now you can see why Merkel had such an about face last year on this whole “More Europe” plan.

No, the Plans Haven’t Been Cancelled. But They Have Been Defined
So did Angela Merkel also sour on the vision for a fiscal union last year too? And did she even reject the political union or was it just a rejection of the idea that the person running the new political union (the European Commission President) would be elected by a vote?. Well, if you look at the signals she was sending last fall after winning reelection, Angela Merkel hasn’t ruling out a political union or a fiscal union. She still had big plans for both and an ever closer Europe. An ever closer Europe on austerity autopilot:

Der SpiegelAngela’s Agenda: A Grand, Controversial Plan for Europe

By SPIEGEL Staff
Angela Merkel’s domestic policy in her third term will likely be confined to higher spending. But she has grand plans for Europe. SPIEGEL has learned she wants Brussels to have far more power over national budgets. It’s a risky move that EU partners and the Social Democrats are likely to oppose.
October 21, 2013 – 04:29 PM

In the end, the atmosphere became downright festive in the Berlin Hall of the Parliamentary Society, a building next to the Reichstag. Chancellor Angela Merkel’s conservatives and the center-left Social Democratic Party (SPD) had met there three times in the last three weeks to sound out whether they could form a coalition government. The decision was still up in the air.

Merkel gave SDP Chairman Sigmar Gabriel a questioning look, and said: “Would you like to say something?” But Gabriel beckoned to her to speak. “I have my delegation’s support for what we discussed,” she said. “So do I,” Gabriel replied.

The grand coalition took shape shortly before 3 p.m. last Thursday. For the third time in postwar German history, Merkel’s Christian Democratic Union, together with its Bavarian sister party, the Christian Social Union (CSU), and the SPD are preparing to form a coalition government. The talks are expected to begin this Wednesday. The chancellor is in a hurry because she wants to have a new government by Christmas at the latest. “Christmas will be here sooner than you think,” she told fellow members of the CDU executive board on Friday afternoon.

At the beginning of her third term, Merkel has more power in Germany and Europe than any chancellor before her. There hasn’t been such a strong majority behind a government in Germany’s parliament, the Bundestag, since the first grand coalition half a century ago. In the midst of the European crisis, Germany has become the undisputed dominant power in Europe.

The grand coalition will hand Merkel a majority she could use to shape Germany and Europe and address major issues, including constitutional reforms in Germany and the reform of European Union institutions.

Merkel, unlike SPD Chairman Gabriel, has been unchallenged in her own party since her election victory. Little is left of the accusations that critics had leveled at Merkel, except one: That she is a chancellor without an agenda, plan or vision; that her style of government is reactive rather than proactive; and that she doesn’t know where she wants to take her government and Germany.

Big Plans for Europe

In the past, Merkel has treated governing primarily as repair work. The major issues of her first two terms in office, the financial crisis and the fight to save the euro, were suitable for that approach. Will that change, now that she has the necessary power and means? Hardly at all, when it comes to Germany. There are no major reforms in the works at government ministries, and the grand coalition will focus on increasing spending to fulfil some of the parties’ campaign promises.
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Keep in mind that the statement “In the past, Merkel has treated governing primarily as repair work,” isn’treallyaccurate. Still, it’s a journalistic tone that suggests the “I have big plans” vibe Merkel was exuding following her reelection was more noticeable to reporters than normal.

Continuing…

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In contrast, officials at the Chancellery are forging plans for Europe that are practically visionary for someone like Merkel. If she prevails, they will fundamentally change the European Union. The goal is to achieve extensive, communal control of national budgets, of public borrowing in the 28 EU capitals and of national plans to boost competitiveness and implement social reforms. The hope is that these measures will ensure the long-term stability of the euro and steer member states onto a common economic and fiscal path. This would be the oft-invoked and ambitious political completion of Europe’s monetary union — a huge achievement.
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Notice how “oft-invoked and ambitious political completion of Europe’s monetary union” didn’t seem to involve a political dimension. Lot’s of new powers for the EU (and especially eurozone) central government, but not too many new ways to create more direct democratic accountability. Funny how that works.

Continuing…

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It isn’t a new goal, but what is new is the thumbscrews Brussels will be allowed to apply if Merkel has her way, including sooner and sharper controls and veto rights, as well as contractually binding agreements and requirements. In short, this would amount to a true reconstruction of the euro zone and a major step in the direction of an “economic government” of the sort the SPD too would like to see put in place.
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Yikes! Merkel wants austerity “thumbscrews” for a newly empowered EU Commission! That’s not good. And the fact that the SPD is apparently also onboard with this ‘thumbscrews’ plan isn’t a good sign either although, as we’ll see below, Martin Schulz (an SPD member) is NOT on board with this plan. At least not the plan to rapidly and radically implement the changes Merkel wants to see.

Continuing…

…
Germany’s current economic strength helps to explain these visions for Europe, since stricter budget controls wouldn’t pose a threat to Berlin at the moment. Jobless levels are so low that the country has almost reached full employment, and the budget is in good shape, at least at the national government level. In fact, public coffers are so full that the government can afford to boost domestic spending.

More Money to Spend

And that’s precisely what the members of that coalition intend to do. The first item on their agenda is to hand out benefits and spend money. Thanks to the strong economy, this won’t even require raising taxes. In his financial planning for the medium term, Finance Minister Wolfgang Schäuble anticipates growing national budget surpluses from the year after next: €200 million ($274 million) in 2015, €5.2 billion in 2016 and €9.6 billion in 2017.

…

More Powers For European Commission

During the negotiations, CSU Chairman Horst Seehofer presented a plan for how the toll could become a reality. It calls for drivers to pay an “infrastructure fee” in the future. Germans would be able claim the fee as a credit against the motor vehicle tax, so that the cost could ultimately be imposed on foreign drivers. According to the document, prepared by Transportation Minister Peter Ramsauer, this would be possible under European law.

The new coalition won’t face serious resistance to its spending policies, not even from the opposition. With the elimination of the pro-business Free Democratic Party (FDP) from the Bundestag, the voice of moderation in budget policy has disappeared. Only the economic wing of the CDU/CSU is likely to put up weak resistance.

So Seehofer will get his toll, the states will be kept happy with financial gifts and the social security offices will hand out benefits. This doesn’t exactly sound like an ambitious program for Merkel’s second coalition government with the Social Democrats. Instead, it feels like more of the same, or a program of minor improvements, at least on the home front.

But regarding Europe, Merkel is heading for strategic decisions — and is likely to show more courage to take political risks than usual.

Schäuble, the last dyed-in-the-wool European among Germany’s top policymakers, can be pleased. Merkel wants tangible amendments to the European Union treaties: more power for Brussels, and even more power for the much-criticized European Commission. “Unfortunately, there is no other option,” say government officials.

Carrot-And-Stick Approach

Last Thursday, after the final round of exploratory talks with the SPD, Merkel brought European Council President Herman Van Rompuy into the loop in a private conversation at the Chancellery. It was a back-door initiative of the kind so typical in EU policymaking. Documents are already being put together at the German Finance Ministry over how “Protocol 14” of the EU Treaty could be beefed up. It currently contains a few general statements on cooperation in and control of the euro zone. But now, if Berlin is able to implement its carrot-and-stick approach, tangible powers for the European Commission will be added to the protocol.

For instance, the Commission could be given the right to conclude, with each euro country, an agreement of sorts to improve competitiveness, investments and budgetary discipline. Such “contractual arrangements” would be riddled with figures and deadlines, so that they could be monitored and possibly even contested at any time. In return, a new, long-discussed Brussels budget will become available to individual countries, an additional euro-zone budget with sums in the double-digit billions for obedient member states.

Protocol 14 could also be used to install the full-time head of the Euro Group. The influential job is now held by one the member states’ finance ministers, currently Dutch Finance Minister Jeroen Dijsselbloem. Devoted Europeans like Schäuble have long dreamed of installing a “euro finance minister.”
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Note the reference to Wolfgang Schaeble’s presumed pleasure over Merkel’s declared plans last fall to implement “more power for Brussels, and even more power for the much-criticized European Commission,” and how he has long dreamed for a “euro zone finance minister”. We’re going to turn to this topic below (hint: he’s still dreaming the dream).

Continuing…

…Resistance Against Merkel’s European Plans

If Chancellor Merkel is focusing on an amendment of this central part of the EU treaties, it is a remarkable about-face. Still, the new course is risky, and it has many detractors and an uncertain outcome. None of this is to the chancellor’s taste, at least not the chancellor we know. But Merkel has already deployed her key European strategist. The relevant department head in the Chancellery, Nikolaus Meyer-Landrut, outlined the German plan at a Brussels meeting in early October. It didn’t go down very well.

…

The president of the European Parliament, German Social Democrat Martin Schulz, has already warned Merkel privately that he won’t back any change in EU treaties. He wants national governments to make the euro zone resilient to future crises by using the instruments created step-by-step over the last three years — without treaty changes. Schulz fears that a treaty change would take too long and that referendums necessary in some countries couldn’t be won given current poor public sentiment regarding the EU. “We will check all the chancellor’s proposals to see whether they can be implemented in all EU states,” says Schulz, who will be part of the SPD’s negotiating team in the coalition talks, responsible for all issues pertaining to Europe.

But Merkel seems undaunted by these obstacles. And she already has a timetable. First she wants to wait and see what happens in the May 2014 European parliamentary election. Then the new president of the European Commission will have to be chosen once the second term of the current incumbent, José Manuel Barroso, ends in 2014. Merkel got him the job and ensured he got a second term. But these days, she doesn’t even bother disguising her contempt for Barroso.

Once the new European Commission is in office, the political window for Merkel’s European vision is expected to open. It doesn’t seem to bother her that she will be in a clear minority when she embarks on her reform plans. She is familiar with this position from the first days of the euro debt crisis, when she wanted to include the International Monetary Fund as a key authority in distributing aid packages, and almost all other euro countries were against the idea. At the time, she said privately: “I’m pretty much alone here. But I don’t care. I’m right.”

Well, well, well, that is quite an agenda that Angela Merkel had in mind back in October: “Thumbscrew” powers and a “carrot and stick” approach to individual states involving contractual agreements to improve “competitiveness”. So, basically, Angela Merkel wants to turn the EU into a far right economic DREAM LAND where individual nations cede sovereignty over their budget to a central EU power in exchange for the “carrots” that come with being an obedient member state. A poorhouse for nations.

Wolgang Approves of the Plan, ASAP
This was Merkel’s plan back in October. Has anything changed, especially since Martin Schulz was pledging not to advance any new treaty changes? Well, back in March there was one requested amendment to the plan, but it wasn’t made by Merkel. Recall the “euro finance minister” dream of Wolfgang Schaeble’s and the presumed pleasure he must have had over Merkel’s sudden “more Europe” agenda. Schaeble still wants the dream to come alive. Soon. Specifically, “as soon as possible” following the upcoming elections:

Germany is pushing for changes to EU treaties “as soon as possible” after the May European elections, in an overhaul to fuse eurozone economic governance behind a budget chief and euro area parliament.

In interviews, speeches and articles, Wolfgang Schäuble, Germany’s finance minister, has given urgency and political impetus to Berlin’s longstanding ideas for a refashioned and more centralised eurozone.

Speaking at the College of Europe in Bruges, Mr Schäuble outlined a vision for a changing EU treaties to establish a “budget commissioner” empowered to use common funds and reject national fiscal plans if they “don’t correspond to the rules”.

Asked when he envisaged agreeing the treaties, he said “today is better than tomorrow” and called for negotiations to start straight after the European parliament elections in May.

These reforms to integrate the eurozone, he added, must be paired with measures to ensure those countries outside are not “systematically disadvantaged” – an approach that will be welcomed by Britain.

In a joint Financial Times article with George Osborne, the UK chancellor, he wrote that future treaty change “must include reform of the governance framework to put euro area integration on a sound legal basis, and guarantee fairness for those EU countries inside the single market but outside the single currency”.

Mr Schäuble’s intervention to restart the reform debate highlights Berlin’s determination that the EU should build on the eurozone’s fragile economic recovery from the financial crisis by creating institutions strong enough to withstand future turmoil.

The veteran finance minister’s pledge to fight for reform comes after the joint declaration in January from German chancellor Angela Merkel and French president François Hollande, pledging to work for closer economic and monetary union.

But the German government has now gone a step further, arguing in the FT that treaty change must also address one of key negotiating demands of Mr Cameron, the UK prime minister, before his planned 2017 referendum: the protection of the interests of euro “outs”.

Mr Schäuble, a long-term advocate of reform, wants to establish an institutional architecture for a common fiscal and economic policy, with a parliament, finance minister and budget to support countries in crisis and encourage reform.

He said it was “nonsense” to suggest the power for a eurozone commissioner to reject national budgets would impinge on sovereignty. “To stick to the rules is not a violation of budget sovereignty…of national sovereignty. We have moved sovereignty to the European level,” he said.

Germany’s renewed appetite for treaty reform will rattle some eurozone member states, which fear the centralisation of budget power would potentially trigger national plebiscites that could not be won.

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“To stick to the rules is not a violation of budget sovereignty…of national sovereignty. We have moved sovereignty to the European level,” says Wolfgang Schaeble. And it’s a sentiment clearly shared by Merkel too. As long as the European Commission is overseeing national budgets, it’s not really a loss of sovereignty. It’s just a transference and concentration of sovereignty into a single institution. At least that seems to be the argument.

But it’s an argument that ignores the fact that the person heading the European Commission – the role Jean-Claude Juncker and Martin Schulz are currently in a neck and neck race for – is still to be ‘elected’ by Angela Merkel or a future German chancellor in a backroom deal. This is why Merkel’s recent refusal to simply back the candidate from the party that wins the elections was so jaw dropping. Anyone paying attention can see what she’s promising: A massive transference of national sovereignty to a central EU-wide institution that Germany would have unofficial veto-power over.

Can this possibly be the long-term plan? It doesn’t look very sustainable. Could we really have one election after another where backroom deals dominated by Germany select a single individual with incredible powers over national policies? Indefinitely? Is that at all realistic? Maybe not. But keep in mind that, should Merkel’s agenda be fully implemented, she might not care if the EU Commission president is directly elected or not. Why? Because the more we learn about Merkel’s plans, the more apparent it’s becoming that the new “United States of Euorope” will play a role alarmingly similar to the economic policies of the European Central Bank: High deficits will result in the “stick” of forced austerity. But what about high unemployment? Have we heard anything in Merkel’s plan about addressing the chronically high unemployment? How about a guaranteed “stimulus” plan that kicks in during a recession, have heard anything about that? Of course not. The “carrot and stick” approach that Angela had in mind is solely focused on debt and deficits. It’s the political/fiscal analog to the ECB’s single-minded focus on inflation. Recall Simon Wren-Lewis’s observation above:

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In a fiscal union, fiscal policy is decided at the centre, so these national obstacles to fiscal expansion could be brushed aside. (This, of course, is one good reason why Germans might be rather reluctant to vote for such a union.) But in practice what would aggregate fiscal policy determined in Brussels look like? All the indications are that it would look much like the fiscal policy we currently have: obsessed with debt, and completely ignorant of any significant multiplier effects. The fundamental misunderstandings about fiscal policy that are embedded in German thinking are now deeply ingrained elsewhere
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Yep! And if Merkel’s plans come to fruition, that obsession with debt, driven by a fundamental misunderstanding about fiscal policies, won’t simply be a contemporary institutional preference. It will be embedded into layers and layers of law at the national and supranational level. Who knows, maybe once the “fiscal union” is in place, and elected officials are powerless to turn off the austerity-engine, a more democratic “political union” will be allowed to emerge too. At that point, why not? Even if there’s a landslide victory of an anti-austerity agenda the implementation of that agenda may not be a realistic option in the future.

Discussion

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Here’s an article that highlights one of the big reasons why Merkel’s rejection of the plan for EU President candidates could be so damaging to “project Europe”: one of the main reasons for switching to the new system is that voters increasingly don’t care about the EU elections and this plan was intended, in part, to personalize the race for the top job and actually engage voters in the larger parliamentary elections. So Merkel’s rejection of this new system might not just generate angry voters. It could be create more non-voters too:

TimeSkepticism Prevails as Europe Prepares to Go to the Polls

Charlotte McDonald-Gibson / Brussels @cmcdonaldgibson

May 13, 2014

An election that was supposed to get Europeans more excited about their continental government, which holds a round of voting to decide which lawmakers sit in European Parliament every five years, has fallen prey to familiar divisions

Before the leading candidates for the European Union’s most powerful position took to the stage for their first televised debate late last month, the moderator looked confidently into the camera and declared: “History is being made.” For the first time, the moderator assured viewers, “you have a say in choosing the European Commission President.”

That may yet prove to be wishful thinking. Until now, national leaders of the European member states would disappear behind closed doors to pick a suitable candidate to lead the main E.U. body, which proposes and upholds laws and guides the day-to-day administration of the 28-country bloc. Giving voters a say in who gets Europe’s top job is meant to make this process more transparent and enthuse the continent’s notoriously apathetic electorate. But the alliance is facing a familiar problem: Not all national governments think it’s a good idea, and a system aimed at boosting the E.U.’s democratic credentials threatens to do the exact opposite.

Here’s the background: Every five years, citizens across the E.U. are given a chance to elect lawmakers to sit in the European Parliament, with the next vote taking place May 22-25. This assembly works along with the 28 governments and the European Commission to formulate, debate and pass laws. Soon after parliamentary elections, the new Commission President is appointed, and becomes the public face of the E.U.

This year, for the first time, the various political groups in the European Parliament have been have been asked to put forward a candidate for the post. The idea is that having personalities fighting a U.S.-style campaign will reenergize voters and help boost turnout, which has dropped from 62% in the inaugural election of 1979, to 43% in 2009. Another motivating factor is dwindling trust in the E.U., with Pew last year finding that only 45% of respondents viewed the E.U. favorably, down from 60% in 2012. This is partly because of the devastating impact of the eurozone crisis, which has sent unemployment soaring and sparked austerity programs which will have an impact for years to come.

The habit of E.U. leaders making decisions behind closed doors with little public scrutiny has also dented the democratic credentials of the alliance. And so, the political group that wins most of the 751 seats in parliament this month will be asked to nominate the next European Commission President.

In theory, this is meant to make the process more transparent.

The European Parliament’s two largest political groups have embraced the plan, with Jean-Claude Juncker, the former prime minister of Luxembourg, representing the center-right European People’s Party, which is currently forecast to win the most seats. Martin Schulz, the current European Parliament president, is leading the Socialists & Democrats. Both have embarked on E.U.-wide bus tours, also taking part in televised debates to convince voters that they are the best candidates for the top job.

But there is one key problem: The 28 national leaders in Europe have the option of simply ignoring candidate put forward by the largest political group in parliament. This is because the language in the E.U. treaty is unclear. The national leaders are free to put forward their own choice for Commission President, with the treaty only obliging them to take the election results “into account.” In other words, despite the push for more transparency, they could reject the nominee put forward by the political group that wins the upcoming election. Were such a scenario to unfold, IMF head Christine Lagarde, Danish Prime Minister Helle Thorning-Schmidt and Irish Taoiseach Enda Kenny are all being touted as potential nominees.

Parliament would still have the option of refusing to approve a candidate selected by the heads of state—but that could lead to a prolonged political stand-off which would be disastrous for the bloc’s image. “If you do get to that situation it’s only going to taint the image of the EU – it’s another institutional argument that is arcane and just looks like its on another planet to what people really care about,” says Stephen Booth, Research Director at the Open Europe think tank in London.

The possibility that national leaders might chose their own candidate has already led to divisions between the seven different political groups in the European Parliament. Five are treating the election as a vote for the next Commission President. The remaining two groups want the 28 heads of state to decide who holds the top job, arguing that national leaders are elected with greater turnout and therefore have more democratic legitimacy. They also want the Commission President to remain politically neutral.

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Yes, one of the consequences to the proposed changes is the EU Commission president would no longer be “political neutral”. So how does a president remain “politically neutral”? Well, in recent years this involved neutralizing political outcomes, so maybe the loss of that neutrality will be compatible with the whole “more democracy” movement.

European Commission presidency candidate Jean-Claude Juncker has defended Portugal’s continuing austerity program as it frees itself from a three-year bailout program that saved the country from collapse.

Juncker, who is campaigning in Lisbon on Sunday, said Portugal made a “clean exit” from the worst financial crisis since World War II but needed to avoid future debt to create growth and jobs.

He said it was “mountains of debt” that got Europe into trouble, and that debt was deeply anti-democratic because countries lumbered with it quickly become fair game for the markets and “the victim of speculators.”

Portugal became the second eurozone country after Ireland to free itself from the austerity and oversight imposed by its European partners and the International Monetary Fund as part of its 78-billion-euro ($107 billion) bailout.

But Jose Cruz has teenaged children in school. He doesn’t want to go, but he may have to. With unemployment still above 15% and youth unemployment close to 40%, around 100,000 people a year are leaving Portugal.

The government has been painting emigration as an opportunity for out-of-work Portuguese to learn new skills. At the foreign ministry, Portuguese Communities Minister Jose Cesario says emigration has always been part of the story of Portugal. “We have five million Portuguese all over the world. So that is our culture, our history.”

‘An insult’

But those kinds of comments have been causing a backlash online among those who have already packed up their bags and left.

“Emigration from Portugal is not a hobby,” Rodrigo Rivera tells me. The 27-year-old moved to Brazil in September to work for a gas company.

He is behind a new online campaign ahead of this month’s European elections that is picking up support among Portuguese migrants worldwide. It is called Emigramos Mas Nao Desistimos, which means We Have Emigrated, But We Have Not Given Up.

“We want to force the political parties to talk about us,” Rodrigo says. “We haven’t left Portugal of our own free will. We are political and economic exiles, who suffer under a regime of austerity that has been imposed on us.”

Supporters of the campaign have emigrated to everywhere from Brazil and Angola to Cambodia, UEA and Europe. Like Jose Reis and Miguel Franco – both in their early 30s – who I meet outside London’s Portuguese Consulate.

“We had our prime minister advising teachers to emigrate,” says sociology student Jose Reis. “We have had several government members almost saying to the youth of their country ‘go away’. It felt like an insult.”

Miguel, who was a science teacher in Portugal and now works in a London restaurant, shows me the campaign’s Facebook page. Someone has uploaded a Portuguese song about being forced to work abroad. Another post explains how to vote in the European elections.

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When your youth are waging a “we haven’t given up” campaign, you know something has gone deeply awry (ithas).

Financial Times
May 19, 2014 5:52 pmJean-Claude Juncker tries to blaze a European campaign trail

By James Fontanella-Khan in Madrid

Even though he already had two wrapped around his neck, Jean-Claude Juncker was offered a third headset by a hostess so he could field questions from the Spanish elite at the Ritz Hotel in central Madrid.

“I’ll learn Spanish next time,” joked Mr Juncker, his arms raised in the air as if in surrender.

The technical hiccup only interrupted Mr Juncker for a few minutes on his eight-week, 32-city campaign tour of Europe as the centre-right’s candidate for European Commission president in this week’s EU-wide poll.

But it is highly symbolic of the challenge he and the other so-called “Spitzenkandidaten” – “lead candidates” for each major party grouping – face: for the first time in EU history, they are trying to persuade citizens to look past narrow domestic politics and instead cast their votes based on the appeal of pan-European candidates.

The Spitzenkandidat’s advocates modelled the system on US presidential contests. Their hope was to foster a truly European political debate and – by linking the European parliamentary elections’ outcome to the commission’s top job – to make its consequences clearer to disinterested voters.

But unlike the US, the EU still remains a patchwork of languages and political cultures. This means voters still tend to obsess about national issues rather than EU policies when they go to the polls – even when selecting European parliamentarians.

“I don’t know if people understand the [Spitzenkandidaten] concept,” Mr Juncker acknowledged, as he wiped his face with a steaming hot white towel and clasped his umpteenth Marlboro red cigarette of the day.

A former long-time Christian Democratic prime minister of Luxembourg, Mr Juncker is regarded in EU circles as the ultimate old-school insider – a backslapping, wine-quaffing master of backroom intrigue who has both brokered alliances and made enemies with nearly every major European figure of the last generation.

Yet even Mr Juncker, who headed the eurozone’s committee of finance ministers during the first three years of the eurozone crisis, doubted whether voters will have his candidacy in mind when they cast their vote.

…

Still, voter ignorance is evident as the candidate and a cohort of aides from the centre-right European People’s Party entered the offices of Tuenti, a Spanish mobile start-up in Madrid. The youthful staff, almost universally in shorts and T-shirts, had little idea who Mr Juncker is as he made the rounds.

Jorge Diz Pico, who manages Tuenti’s internet traffic system, assumed he was a Spanish politician. Oscar San José, a developer at the start-up, guessed that he is a European official.

The same was true in France, even though both Mr Juncker and Mr Schulz have campaigned there speaking fluent French. Melanie Przyrowski, secretary-general of Young Europe in Bordeaux, admitted the choice of commission candidates is not inspiring the grassroots.

…

Mr Juncker is under no illusions. Having been at the forefront of EU integration for nearly three decades, he realises his appeal may be limited in a current climate of popular hostility to Brussels and the EU. But he likes to think of himself as a pioneer in this new phase of pan-European democracy.

“It will take time” he said. “But it will happen.”

That doesn’t sound very optimistic in terms of voter turnout. Then again, given the EU’s record low 43% in 2009 and and the fact that there was no ‘Spitzenkandidat’ system for EU Commission president candidates, an uptick in turnout is at least possible. Likely? Not so much:

QuartzThe polls are open in Europe—will voters actually show up?
By Jason Karaian @jkaraian May 22, 2014

Can you sense the excitement? Voting is underway for the European Parliament, with polls in Britain and the Netherlands taking place today. The bulk of the EU votes on Sunday (May 25), so the results for the 751-seat parliament won’t be known until then. Only the Dutch will release exit polls before voting closes in the EU’s 27 other member states.
+

It is appropriate that the poll begins in the UK and Holland, as the rise of right-wing euroskeptic parties has been a particularly dominant theme of the campaigns there, as it has across much of Europe. British and Dutch voters’ apathy when it comes to the European Parliament is also indicative—only around a third of eligible voters in both countries took part in the previous election, in 2009. Overall, just 43% of EU citizens cast a vote for the pan-European parliament the last time around, the lowest turnout since the institution was founded:

Eurocrats hope to stem the slide this year, although some number crunchers reckon that turnout will be a meager 40%, at best. Another fall in turnout risks turning the parliament into “a failed experiment in pan-European democracy,” according to think tank Open Europe. Though the parliament has steadily gained more powers, the average voter simply doesn’t seem to care.

Voters in the EU’s biggest countries—most of which were the EU’s founding members—are particularly apathetic. Turnout has plunged by a fifth or more in Germany, France, and Italy since the first European Parliament election in 1979. The trends in most other countries aren’t encouraging either.

This plays into the hands of upstart parties with strong anti-EU views. While many people find the Brussels-based parliament somewhat inscrutable, a growing faction sees the EU as a grave threat to national sovereignty. These voters are much more likely to vote than supporters of mainstream parties that cling closer to the political center. The latest opinion surveys put the UK Independence Party and France’s National Front in the lead among all parties in their countries.

All told, the “populist anti-EU, anti-austerity, anti-immigrant, and anti-establishment” parties could win around 30% of the European Parliament vote, says Open Europe (pdf). Put another way, assuming that turnout is broadly similar to the previous election, three-quarters of EU voters “will have voted against the EU, for radical change, or not bothered to vote at all.”
…

Uh oh. It’s looking like we should expect falling turnout and a far right surge. Or is it?

Far right suffers Dutch surprise as EU vote begins

By Luke Baker

BRUSSELS Thu May 22, 2014 10:35pm BST

(Reuters) – The European Union’s marathon parliamentary election kicked off on Thursday when Britain and the Netherlands voted, with right-wing, anti-EU parties expected to attract a surge of protest votes in many countries on a low turnout.

However, a Dutch exit poll indicated that the anti-Islam, Eurosceptic Freedom Party of Geert Wilders’ – which plans to forge an alliance with France’s far-right National Front – had fallen well short of its goal of topping the poll.

…

With Europe struggling to recover from economic crisis, including record high unemployment and negligible growth, the election is expected to produce a surge in support for Eurosceptics on both the far-right and hard left.

In Britain, final opinion polls showed the UK Independence Party, which wants to withdraw from the EU and impose tighter immigration controls, topping the poll and pushing the governing Conservatives into third place behind Labour.

If confirmed, that could raise pressure on Conservative Prime Minister David Cameron, who has promised an in/out referendum on EU membership in 2017 if he is re-elected next year, to take a tougher line on reducing the EU’s powers.

In the Netherlands, an IPSOS exit poll on public television suggested Wilders’ Freedom Party would finish fourth with 12.2 percent, behind three pro-European parties, the centre-right Christian Democrats, the centrist Democrats 66 and Prime Minister Mark Rutte’s liberals.

Wilders blamed the disappointing score on a low turnout, saying that “by staying home (voters) showed their loathing for and disinterest in the European Union. The Netherlands has not become more pro-European.”

In the last European Parliament elections five years ago the Freedom Party came second. Andre Krouwel, a political science professor at Amsterdam’s VU University, said Wilders had failed to get enough of his supporters to turn out.

“His support isn’t down, around one third of the electorate agrees with him – but that one third didn’t show up,” he said. “That’s bad news for him, because he wanted to portray himself as a victor … That would have given him status in Europe.”

…

So is voter apathy going to be Europe’s unexpected anti-far right electoral firewall? We’ll find out in a few days. And then, weeks later and after rounds of backroom deals, we’ll find out who the new EU president is and whether or not it’s the same candidate voters backed or not. And that point we’ll get a better idea of whether or not the EU has another round of brutal austerity or somewhat less brutal austerity. So save your tears of joy if the far right has a bad week at the polls because you might need them later. There’s a lot of layers to the EU onion.

Marine Le Pen, leader of France’s far-right National Front party, disputed on Friday reports that her father suggested Ebola as a possible cure for Europe’s immigration problem.

“Madame, this is a lie,” Le Pen told CNN’s Christiane Amanpour. “That is a lie, a maneuver, a campaign maneuver. He never said that.”

Ahead of European Parliament elections, Jean-Marie Le Pen – founder of the National Front – reportedly said the deadly Ebola virus could help step global population and help Europe’s “immigration problem” in the process, according to French media.

“He was not speaking about immigration,” Marine Le Pen said. “He was speaking about the fate of humanity as a whole. That is what he said.”

The National Front, like many far-right parties across Europe, is grappling with allegations that in advocating more national autonomy from the EU they are also spewing racist propaganda.

“I do not have any image to clean up as far as the leadership is concerned. [My father] defends all French people, whatever their race, whatever their religion, whatever their origins.”

“So let me just be clear,” Amanpour said, “the French press reported that those were your father’s words ahead of a rally in Marseille this week on Tuesday. Are you denying that?”

A recent BVA poll showed 79% of voters think Le Pen’s position on the EU is undesirable, and 68% have a poor opinion of Le Pen. What chance does she have of winning?

“I can remind you that the French president has seventeen per cent popularity at the moment. Mister Copé, the president of the UMP [Union for a Popular Movement] has twelve-percent popularity. So you can see if twenty-four percent is the result, we can see that democracy will have spoken.”

“The National Front is a movement which interests many people throughout the world, and we have to see what things are from the point of view of the truth and not an image which our opponents give of us.”

“The National Front is a movement which interests many people throughout the world,” according to Le Pen. Throughout the world? That seems a bit much, although if there’s ever a global ebola outbreak there will no doubt me a great deal more global interest in the National Front (and not entirely positive interest at that point). But she is correct that people outside of France are keeping an eye on the National Front. Geert Wilders, for instance, formed an alliance with Le Pen last fall as part of a pan-European far right movement and, perhaps not surprisingly, his interest in Le Pen and her family’s legacy hasn’t been very positive either, of late:

The TelegraphEU elections 2014: ‘toxic’ Marine Le Pen blamed for Geert Wilders defeat
EU election defeat for Geert Wilders blamed on his decision to link with French Front National rather than Nigel Farage

By Bruno Waterfield, Scheveningen and Henry Samuel in Paris

5:32PM BST 23 May 2014

A disastrous European Union election vote for the Dutch far-Right has been blamed on a “toxic” Marine Le Pen and is seen as vindication of Nigel Farage’s refusal to work with the French Front National.

The result is a blow to Miss Le Pen and will be widely seen as the consequence of her failure to break from the Front National’s extremist past, a legacy embodied by her father Jean-Marie who remains an MEP and honorary president of the party.

As Dutch voters went to the polls, Mr Wilders faced questions over Jean-Marie’s Le Pen’s claim that Ebola, the deadly virus, could solve the world’s population explosion and France’s immigration problems “in three months”, a row that recalled his past convictions for Holocaust denial.

Mr Wilders blamed the setback on the “65 per cent” of his Freedom Party’s voters who had “stayed at home” amid low Dutch turnout estimated at around 34 per cent but admitted “the truth is that the exit polls are disappointing”.

Lucas Hartong, the most senior MEP for Mr Wilders’ PVV refused to campaign in the EU elections because he warned last month that the link with the Front National and the Austrian far-Right was wrong and would prove to be an electoral disaster.

“I am not at all surprised at the result. It’s what I warned of. I think there will be an internal fight now, people will want to work with Farage and to drop Le Pen,” he said.

“These parties have a tendency to anti-Semitism. Most PVV voters want to work with people like Ukip. They didn’t come out because they were concerned.”

Mr Hartong revealed that in 2011 he and his three colleagues in the European Parliament entered into talks with Mr Farage but that the proposal to form an alliance had been personally rejected by Mr Wilders, who now says he would like to work with Ukip in the future.

“It was Wilders who blocked it. My question is why did he want to work with Le Pen and not Farage?,” he said.

Esther Voet, the director of the influential Dutch Information and Documentation on Israel Centre, said that the comments by Mr Le Pen had reminded voters of the Front National’s past links to anti-Semitism, a political taboo in the Netherlands.

“I’m sure a lot people planning to vote for him changed their minds,” she said.

Amid a French backlash over her father’s comments about Ebola on Tuesday, Miss Le Pen insisted the comments had been “distorted” and that he had meant to say that the deadly virus would act as a form of brutal population control.

…

So will Le Pen’s global death wish bleed over into Sunday’s races in France and elsewhere or will the Ebola Party and its allies manage to maintain their electoral momentum? Either way, it’s a reminder that, in addition to ebola itself, those awful human mind viruses that trivialize and celebrate mass death are alive and well too.

And the results are in, unofficially at least. Euroskepticism appears to be the big winner in terms of relative gains from the last election, with the “euroskeptics” in the EU parliament roughly doubling to around a quarter of the parliament. But the impact may be mostly felt at the national level since the pro-EU parties are still going to maintain control of the EU parliament and Jean-Claude Juncker’s “center-right” party looks to be on track to win enough seats to claim the right to declare Juncker the new EU Commission president. So a general rejection of austerity and the EU project in general were the big symbolic winners this year while Jean-Claude “Mr. Euro” Juncker is poised to become the EU Commission president. That should go well:

French far right in ‘earthquake’ win as Europe votes

By Luke Baker, Paul and Taylor

BRUSSELS Mon May 26, 2014 12:41am BST

(Reuters) – Marine Le Pen’s far right National Front scored a stunning first victory in European Parliament elections in France on Sunday as critics of the European Union registered a continent-wide protest vote against austerity and mass unemployment.

Without waiting for the final result, French Prime Minister Manuel Valls went on television to call the breakthrough by the anti-immigration, anti-euro party in one of the EU’s founding nations “an earthquake” for France and Europe.

Anti-establishment far right and hard left parties, their scores magnified by another low turnout, gained ground in many countries although in Germany, the EU’s biggest member state with the largest number of seats, the pro-European centre ground held firm, according to exit polls.

A jubilant Le Pen, whose party beat President Francois Hollande’s ruling Socialists into third place, told supporters: “The people have spoken loud and clear… they no longer want to be led by those outside our borders, by EU commissioners and technocrats who are unelected.

“They want to be protected from globalisation and take back the reins of their destiny.”

The National Front was set to win more than 25 percent of the vote, comfortably ahead of the conservative opposition UMP on 21 percent, with the Socialists on 14.5 percent, their second defeat in two months after losing dozens of town halls in March.

First official results from around the 28-nation bloc showed the pro-European centre-left and centre-right parties will keep control of the 751-seat EU legislature, but the number of Eurosceptic members will more than double.

The centre-right European People’s Party, led by former Luxembourg Prime Minister Jean-Claude Juncker, was on track to win 212 seats, preliminary results issued by the parliament showed.

“We did win the elections,” Juncker told reporters, saying his party had earned the right to head the executive European Commission.

The centre-left Socialists led by outgoing European Parliament President Martin Schulz of Germany were in second place with 185 seats followed by the centrist liberals on 71 and the Greens 55. Eurosceptic groups were expected to win about 143 seats, and the far left another 45.

A glum looking Schulz was not conceding defeat, telling reporters he was open to negotiations with other parties.

The political fallout may be felt more strongly in national politics than at EU level, pulling mainstream conservative parties further to the right and raising pressure to crack down on immigration.

UKIP MAKE BIG GAINS

The anti-EU UK Independence Party led by populist Nigel Farage scored major gains and was leading the opposition Labour party and Prime Minister David Cameron’s Conservatives in early results from Britain, where voting took place last Thursday.

That will pile pressure on Cameron, who has promised Britons an in/out referendum on EU membership in 2017 if he is re-elected next year, to take an even tougher line in Europe.

“The whole European project has been a lie,” Farage said on a television link-up with Brussels. “I don’t just want Britain to leave the European Union, I want Europe to leave the European Union.”

In Italy, Prime Minister Matteo Renzi’s centre-left Democratic Party was holding off a strong challenge from the anti-establishment 5-Star Movement of former comic Beppe Grillo, according to a first exit poll of uncertain reliability.

Denmark’s anti-immigration far right People’s Party was set to top the poll with an estimated 23 percent and the extreme-right Jobbik, widely accused of racism and anti-Semitism, was running second in Hungary with 15 percent.

In the Netherlands, the anti-Islam, Eurosceptic Dutch Freedom Party of Geert Wilders’ – which plans to forge an alliance with Le Pen – finished joint second in terms of European Parliament seats behind a pro-European centrist opposition party.

Although 388 million Europeans were eligible to vote, less than half that number cast ballots. Average turnout was officially estimated at 43.1 percent, barely higher than the 2009 nadir of 43.0 percent, despite efforts to personalise the election with all the mainstream political families putting forward a leading candidate or “Spitzenkandidat”.

In Germany, Chancellor Angela Merkel’s Christian Democrats were set to secure 36 percent of the vote, down from a 23-year-high of 41.5 percent in last year’s federal election but still a clear victory. The centre-left Social Democrats, her coalition partners, were forecast to take 27.5 percent.

The anti-euro Alternative for Germany (AfD) won parliamentary representation for the first time with an estimated 6.5 percent, the best result so far for a conservative party created only last year.

“Germany has cast a clear pro-Europe vote and the high turnout is a good signal for the idea of European unity,” said David McAllister, the top Christian Democrat candidate.

GREEK FAR LEFT GAINS

It was a different story in Greece, epicentre of the euro zone’s debt crisis, where the radical left anti-austerity Syriza movement of Alexis Tsipras was set to win with 26.7 percent, pushing governing New Democracy into second place on 22.8 percent.

That reflected popular anger at harsh spending cuts the government has adopted in recent years to meet the terms of its EU/IMF bailout programme.

The surge in support for the far left raises doubts about how much longer the coalition government can last with a parliamentary majority of just two seats, although government spokesman Simos Kedikoglou said it would endure.

“The political scenario of a government collapse, which Syriza was trying to paint, has not been borne out by the facts,” he told Greek television.

The two parties in the coalition, New Democracy and PASOK, won a combined vote larger than that of Syriza.

Sunday was the fourth and final day of voting in elections to the European Parliament, which is an equal co-legislator with member states on most EU laws.

Far-right and radical left groups were expected to secure up to a quarter of the seats, enough to gain a much louder voice but probably not to block EU legislation.

Officials said final results and seat allotments would likely not be finalised until later on Monday.

The New York Times
The Conscience of a LiberalEuropean Green Lanterns
Paul Krugman
May 26 11:13 am

Sitting in a room listening to EU officials reacting to the European Parliament elections — and it seems to me that they’re deep in denial. Barroso just declared that the euro had nothing to do with the crisis, that it was all failed policies at the national level; a few minutes ago he said that Europe’s real problem is a lack of political will.

This is quite amazing, in a really bad way.

Sorry, but depression-level slumps didn’t happen in Europe before the coming of the euro. And we know very well what happened: first the creation of the euro encouraged massive capital flows to southern Europe, then the money dried up — and the absence of national currencies meant that the debtor countries had to go through an extremely painful process of deflation. How anyone could deny any role for the currency …

And if there’s one thing Europe has, it’s political will. All across the southern tier, governments have dutifully imposed incredibly harsh austerity in the name of being good Europeans. What should they have done that they haven’t?

I guess the notion is that if the Greeks, or the Portuguese, or the Spaniards really, truly committed their all-powerful wills to reform and adjustment, their economies would boom despite deflation and austerity. The possibility that things are so bad — and radicals have been empowered — because the policies are fundamentally misguided just doesn’t seem to be considered.

The fly’s eyes don’t lie: Just as 1 – 1 = 2 and always equaled 2, it’s perfectly reasonable to plan on massively deflating your economy while keeping your currency fixed and expecting it to all heal and there’s really no other way forward because the austerity policies were all the fault of national governments anyways. So says EU Commission president Barroso. Again. Where there’s a will, there’s a way.

(Reuters) – The victory of France’s far-right National Front in EU elections and the disarray of its two main parties has the French asking themselves an awkward question: could its leader Marine Le Pen be their next president?

The answer for now is: “Probably not”. But the mere fact that serious analysts are even entertaining the prospect of Le Pen entering the Elysee Palace after 2017 elections shows how much the political landscape has been shaken in the past week.

…

“The way things are now, when Marine Le Pen speaks, people listen to her,” said Jean-Daniel Levy of pollster Harris Interactive. “Election after election, she just goes from strength to strength.

To be sure, the FN has been gradually building momentum for years. But its supporters, enemies and independent political analysts alike all agree that something new is emerging.

In 2002, when Le Pen’s firebrand father Jean-Marie shocked France by beating his Socialist rival out of the run-off to that year’s presidential election, an estimated 1.3 million people took to the streets in stunned protest.

In the decisive second round, left-wing voters famously took pictures of themselves clutching their noses as they voted for the conservative candidate Jacques Chirac – putting aside their contempt for him to ensure Le Pen was comprehensively beaten.

This time, there has been no such mass protest. Attempts to rally anti-FN demonstrators in Paris on Thursday’s Ascension Day public holiday mustered only about 4,200 people, mostly high-school and university students, according to police estimates.

“It (the FN’s poll win) shows that a certain racist sentiment has become commonplace in France,” said Marion Faucheux, a 28-year-old welfare worker at the rally.

YOUTH APPEAL

Since taking control of the party from her father in 2011, 45-year-old Marine Le Pen, a trained lawyer, has transformed the image of a party once tainted by association with anti-Semitism and sought, step by step, to make of it a party of government.

Aside from the odd slip – she was accused of incitement to racial hatred for a 2010 remark likening Muslim street prayers to the Nazi occupation of France – Le Pen has marginalised the party’s old guard and punished overt racism in party ranks.

She has promoted capable operators such as her vice-president Florian Philippot, an alumnus of the prestigious ENA school. The FN’s anti-immigrant platform is still there but Le Pen herself concentrates her redoubtable debating skills on tirades against the euro, free markets and the ineptitudes of her rivals.

The strategy shift has won the FN a whole new generation of supporters, with pollster Ipsos-Steria estimating that no fewer than 30 percent of voters under the age of 35 backed the FN in the European vote, and a huge 37 percent among the unemployed.

Moreover, the so-called “republican front” that in 2002 blocked Jean-Marie Le Pen – an unwritten pact among mainstream parties to step back and endorse rivals if they stand a better chance of seeing off the FN – is no longer guaranteedo.

It was already ditched by the UMP ahead of 2012’s parliament elections and patently failed in March’s municipal vote. The result was that the FN is now running a record 11 town halls across France.

“Can it be revived in time for the 2017 election? At this stage it is simply too early to say,” said Frederic Dabi, deputy director of the Ifop polling institute.

PARTY AT THE “ELYSEE LOUNGE”

As elsewhere, French mid-term polls are unreliable augurs: the ecologist Greens’ followed up their record 16.3 percent score in the 2009 European Parliament vote with a meagre 2.5 percent in the 2012 presidential election.

But already France’s discredited mainstream parties know they cannot go up against the FN in 2017 with the status quo. Yet changing it in just three years may prove difficult.

Top conservatives led by former prime minister Alain Juppe have urged the UMP to get back on its feet and combat the FN by forging a new alliance with UDI-Modem centrists – a move Modem chairman Francois Bayrou said this week he would consider.

The centrists want a primary to decide who gets any joint ticket for 2017. Yet Sarkozy – who unless he is wounded by the funding scandal surrounding his 2012 campaign is still the first choice for many on the French right – is not prepared to subject himself to any such exercise, his allies say.

Likewise the Socialist Party could seek to rally the Greens and small hard-left groupings such as the Left Party of Jean-Luc Melenchon behind its candidate. Yet left-wingers are unlikely to back Hollande – who this year came out as a moderate “social democrat” – or his even more centre-leaning premier Manuel Valls.

“Such an alliance is impossible if it is on the basis of the government’s current line,” Socialist deputy Laurent Baumel told Reuters. “If the idea is to issue a rallying cry for unity against the FN threat – forget it.”

Barring a swift upturn in the fortunes of the UMP and a tangible economic recovery needed to restore the credibility of the ruling Socialists, Le Pen is seen likely to emulate the 2002 exploit of her father and make it into the presidential run-off.

“If the FN makes it into the second round in 2017, our feeling is that the margin of victory will not be 80-20 as it was in 2002,” said Bruno Jeanbart of Opinionway survey group, referring to Chirac’s landslide 82-percent victory.

The choice of venue for the National Front’s post-election night celebration last Sunday was perhaps no accident: a chic restaurant-bar in Paris’s swish eighth arrondissement called “L’Elysee Lounge”.

One of the longer term questions raised by the possibility of “President Le Pen” is what’s going to happen, say a decade from now, if France does end up electing a far right president promising an anti-EU platform and all sorts of other perks if the EU’s structure simply gives the national governments no real room for flexibility? As is, Le Pen’s platform centered around a “patriotic economic policy” that includes:

…replacing the euro with a resuscitated French franc; erecting trade barriers to foil “unfair” competition from the likes of China; banning foreigners from buying French companies; raising wages; and scrapping the independence of the central bank so it can produce money at the government’s beck and call.
…

It’s pretty unclear how really any of that that can happen without France leaving the eurozone and maybe even the EU entirely. And with the direction the EU – and especially the eurozone – is heading in, where national governments have less and less control over their own policies as they get subsumed into the larger EU austerity-be-default system, you have to wonder how big protest votes like this are going to play out in the future if the national leaders are increasingly powerless to implement any sort of real change in policy while, at the same time, voters are increasingly pining for big changes because the status quo is so awful. What will the EU party platforms be like in the future, after a few more rounds of protest votes like what we just saw, if the protests don’t really lead to any changes because changes aren’t possible at the national level without the acquiescence of the EU leaders like Merkel? This isn’t the “United States of Europe” yet and won’t be for a long time, especially in the minds of the electorate if parties like the National Front are surging amongst the youth. But at some point, the kinds of promises Le Pen made simply aren’t going to politically feasible because everyone will know they’re impossible to implement unless France ditches the EU. And at that point, isn’t outright secession going to become the default “protest” platform?

Another interesting question that gets raised by this whole situation: what would the European far right’s response be if the EU had a massive crackdown on immigration within the EU and then eased up on the austerity a bit. Would the European far right embrace an EU that’s still largely anti-democratic, pro-austerity, and effectively dominated by Berlin if EU policy-makers decide to gut the EU’s immigration policies? Such a move may not be popular in central and eastern Europe, but how about in France or even the UK? Would voters accept a permanent austerity regime in exchange for anti-immigration policies that included restrictions on free movement and immigration within the EU for EU citizens?

How about EU leaders like Merkel? Will they find such a deal acceptable? Maybe? When the far right surges anywhere difficult question need to be asked and the highly unusual circumstances in the EU today don’t make those difficult questions any easier.

Who’s in control – nation states or global corporations?
Around the world, calls for national autonomy have grown. Minorities are blamed but the real culprit is neoliberalism

Gary Younge
The Guardian, Sunday 1 June 2014

The night in 2002 when Luiz Inácio Lula da Silva won his landslide victory in Brazil’s presidential elections, he warned supporters: “So far, it has been easy. The hard part begins now.” He wasn’t wrong. As head of the leftwing Workers’ party he was elected on a platform of fighting poverty and redistributing wealth. A year earlier, the party had produced a document, Another Brazil is Possible, laying out its electoral programme. In a section entitled “The Necessary Rupture”, it argued: “Regarding the foreign debt, now predominantly private, it will be necessary to denounce the agreement with the IMF, in order to free the economic policy from the restrictions imposed on growth and on the defence of Brazilian commercial interests.”

But on the way to Lula’s inauguration the invisible hand of the market tore up his electoral promises and boxed the country around the ears for its reckless democratic choice. In the three months between his winning and being sworn in, the currency plummeted by 30%, $6bn in hot money left the country, and some agencies gave Brazil the highest debt-risk ratings in the world. “We are in government but not in power,” said Lula’s close aide, Dominican friar Frei Betto. “Power today is global power, the power of the big companies, the power of financial capital.”

The limited ability of national governments to pursue any agenda that has not first been endorsed by international capital and its proxies is no longer simply the cross they have to bear; it is the cross to which we have all been nailed The nation state is the primary democratic entity that remains. But given the scale of neoliberal globalisation it is clearly no longer up to that task.

“By many measures, corporations are more central players in global affairs than nations,” writes Benjamin Barber in Jihad vs McWorld. “We call them multinational but they are more accurately understood as postnational, transnational or even anti-national. For they abjure the very idea of nations or any other parochialism that limits them in time or space.”

This contradiction is not new. Indeed, it is precisely because it has continued, challenged but virtually unchecked, for more than a generation, that political cynicism has intensified.

“The crisis consists precisely in the fact that the old is dying and the new cannot be born,” argued the Italian Marxist Antonio Gramsci. “In this interregnum a great variety of morbid symptoms appear.”

The recent success of the far right in the European parliamentary elections revealed just how morbid those symptoms have become. Nationalist and openly xenophobic parties topped the polls in three countries – Denmark, France and the UK – and won more than 10% in another five. These victories, election to a parliament with little real power, on a very low turnout, can be overstated. Ukip won just 9% of the eligible electorate, the Front National 10.6% and the Danish People’s party 15%. But the trend should not be underplayed. Over the past 30 years, fascism – and its 57 varieties of fellow travellers in denial – has shifted as a political current from marginal to mainstream to central in Europe’s political culture.

The problem with describing these parties as racist is not that the description is inaccurate but that, by itself, it is inadequate. For their appeal lies in a far broader set of anxieties about the degree to which our politics and economics are shaped by forces accountable to none and controlled by a few: a drift towards cosmopolitanism in which citizens, once relatively secure in their national identity and financial wellbeing, are excluded from the polity.

…

“It seems clear that … nationalism is not only not a spent force,” argued the late Stuart Hall in an essay, Our Mongrel Selves. “It isn’t necessarily either a reactionary or a progressive force, politically.” It suits the far right to shroud its racial animus within these blurred distinctions in order to appear more moderate. “Our people demand one type of politics: they want politics by the French, for the French, with the French,” said Front National leader Marine Le Pen in her victory speech. “They don’t want to be led any more from outside. What is happening in France heralds what will happen in all European countries, the return of the nation.”

That is unlikely. Quite how these parties turn the clock back and what year they would set it to is not clear. Neither the right nor the left has a solution for this crisis. But while the left holds out hope of building a more inclusive society in the future, the right has built its populist credentials on retreating to an exclusionary past.

In the absence of any serious strategy to protect democracy the right resorts, instead, to a defence of “culture” – reinvented as “tradition”, elevated to “heritage” and imagined as immutable. Having evoked the myth of purity it then targets the human pollutants – low-skilled immigrants, Gypsies, Muslims, take your pick. People who wouldn’t know a credit default swap if it ran up and kicked them out of their house, but who are as accessible and identifiable as neoliberal globalisation – that force without a face – is elusive.

“Minorities are the flashpoint for a series of uncertainties that mediate between everyday life and its fast-shifting global backdrop,” writes Arjun Appadurai in Fear of Small Numbers. “This uncertainty, exacerbated by an inability of states to secure economic sovereignty in the era of globalisation, can translate into a lack of tolerance of any sort of collective stranger.” The targets of this intolerance shift according to the context: Roma in Hungary, Romanians in Britain, Latinos in the US and Muslims almost everywhere in the west. But the rhetoric and the true nature of the crisis remain constant. Parochial identities describe the protagonists, but it is global economics that shapes the narrative.

And here’s an article that’s a reminder that the neoliberal forces that have been unleashed across the EU aren’t solely the consequence of the neoliberal nature of the type of globalization embraced by the global community. The EU, itself, is increasingly neoliberal in nature which is why creating a real “United States of Europe” is so difficult: getting national leaders to collectively give up national sovereignty to a central authority is a difficult enough task on its own. But when that central authority is neoliberal in nature, the sovereignty handed over by the nation states isn’t exactly generated into a new a collectively run pan-national sovereignty. It just gets handed over to the central authorities that are going to run the new “United States of Europe” on neoliberal autopilot:

Rabble.caEurope disenchanted: After the European Parliament elections
By
Duncan Cameron
| June 3, 2014

The great French poet Victor Hugo speaking to an international peace conference in 1849 called for the establishment of a United States of Europe. With the blood hardly dry after World War II ended in Europe in 1945, a group of French thinkers, notably Jean Monnet, drew up plans for European economic co-operation.

…

Today the European Union counts 28 members. It is still governed by treaty (the Maastricht Treaty of 1992 formally created the European Union).

Europe remains primarily an economic space, given a distinctly neoliberal character by Mastrich, accentuated by the introduction of the euro, the common currency adopted by 18 of the 28 states, and by the recent two Single Market Acts.

The European Union has no formal constitution, independent head of state, or directly elected government, yet by virtue of its regulating authority it is a big part of everyday life for its over 500 million residents.

As an impressive group of thinkers including French economist Thomas Piketty has argued, the European project badly needs to be updated and improved. Identifying debts as “national” inside a currency union encourages speculation against the bonds of weaker countries, not access to borrowing on fair terms. A monetary policy designed to stifle inflation makes no sense in a world dominated by deflationary pressures. Austerity is another way of saying staggering youth unemployment, and precarious employment.

The results of the May 25 European Parliament elections revealed an indifference to the European project, and worse.

The telling result was the rates of abstention from voting, as high as 87 per cent in Slovakia, 81 per cent in the Czech Republic, and 77 per cent in Poland. Only Belgium (10 per cent), Luxembourg (10 per cent), Ireland (48 per cent), Denmark (44 per cent) Greece (42 per cent), Italy (40 per cent), and Malta (25 per cent) showed abstention rates below 50 per cent.

Worse was that the crypto-Fascist and Europhobic National Front led the polls in France with 25 per cent of the vote, and 24 of 74 seats, while the anti-European United Kingdom Independence Party (UKIP) won 28 per cent of the U.K. vote, and 23 of 73 seats.

Overall the Eurosceptics stayed home, while those who want change voted for small parties of the left or right. The exception was Italy, which gave a healthy 35 per cent of the vote to the left of centre governing party, 15 percentage points more than in the last general Italian election.

The new 751-seat European Parliament will be dominated by Christian Democrats (214 seats), and Social Democrats (191 seats). Of the others, Liberal Democrats hold 64 seats, Greens 52, Conservatives 46, and Europe Left 45. The national sovereignty group totals 36. Of the various remaining parties, those unable to group (it takes 25 elected members to form a parliamentary group) include the French National Front, which the British UKIP refuse to sit with because of FN anti-semitism, and the Greek Neo-Fascists, which the FN reject as unsuitable seatmates.

George Orwell wrote that the real schism in political regimes was between authoritarian and libertarian. Undoubtedly, the imposition of neoliberal economics by the EU treaty has repressed political expression, replacing the give and take of public negotiations with a regulatory process dominated by corporate lobbies, and carried on in the spirit of protecting investors.

European national leaders are reluctant to give up power to a central authority, thus a federal Europe is unlikely to emerge from normal European politics: periodic national summits.

Every time Europe has gotten to the stage where it was ready to go beyond being an economic space, rather than proceed with political integration, summit leaders have voted to take on new members.

It is hard to practice open politics in a space without an identifiable political face, or elected executive, let alone an engaged citizenry. So long as social democratic market economics remain indistinguishable from neoliberalism expect European discontent to continue.

…

Despite disenchantment, there is no reason to think socialist Europe has said its last word on European integration, or that the utopia imagined by the poet Hugo no longer inspires Europeans.

It’s difficult to see the far right offering any solutions that don’t involve either a complete breakup of the EU or an embrace of pan-European neoliberalism as a trade off for far right ethnic identity policies in member states (the nightmare scenario). The far right’s “us vs them” mentality eliminates a real European identity that would be necessary for the creation of a real integrated Europe. And the neoliberal current regime is just a non-stop disaster. So the question of what would actually work is going to be a question increasingly asked by EU citizens in general and it could lead to some very useful answers not just for Europe but the rest of the world too.

Here’s an article that highlights some of the aspects about the Scottish separatist movement that fundamentally differ from the other separatist movements we seen popping up around the EU: whereas the Scots seem to be driven, in part, on a desire to expand their welfare state and remain open to immigrants from around the EU, many of the other separatist sentiments growing across the EU appear to be manifesting in the wealthiest regions that want to either close off immigration and/or stop subsidizing their poorer neighbors:

Europe changing shape whichever way Scotland goes

By Paul Taylor

PARIS Sun Sep 14, 2014 6:03am EDT

(Reuters) – Whatever the outcome of this week’s Scottish referendum on independence, the shape of Europe is changing as power ebbs away from old nation states, sparking a backlash in some places.

If Scots vote “Yes” to splitting from England after 307 years of union, it will cause a political earthquake and whet appetites for self-rule from Catalonia to Flanders.

If they vote “No”, the British government has promised to decentralize more powers to Edinburgh, with likely knock-on effects in Wales and Northern Ireland.

Either way, the precedent of a plebiscite on self-determination will reverberate around the continent.

The Spanish government may find it hard to withstand public pressure in Catalonia to allow that prosperous northeastern region of 7.4 million people – bigger than a dozen EU states – a vote on sovereignty.

Hundreds of thousands of Catalans packed the streets of Barcelona last week to demand the right to choose. What the Catalans do is bound to influence Spain’s Basques, who already have broader autonomy.

…

Globalization and European Union integration are partly responsible for unleashing a struggle between centrifugal and centripetal forces that is far from stabilizing.

States that fought each other for centuries now share a currency, an area of passport-free travel, a single market with free movement of citizens, capital, goods and services, and a raft of jointly adopted norms and standards.

Nationalists find that hard to swallow, as the big vote for anti-EU parties in Britain, France, Austria and the Netherlands in this year’s European Parliament elections showed.

A former imperial power like Britain which boasted in patriotic song of ruling the waves now has to negotiate its fishing catch in late-night Brussels haggling.

European countries have become what former British and EU diplomat Robert Cooper calls “post-modern states”, freely pooling part of their sovereignty.

“The European Union is a highly developed system for mutual interference in each others’ domestic affairs, right down to beer and sausages,” Cooper wrote in his 2003 book The Breaking of Nations.

That has made national borders less important and raised demands from citizens for more democratic control at a sub-national level.

The EU has been the catalyst for many of these changes but not always the solution.

A European Committee of the Regions created in the 1990s to give local and regional elected officials a say in Brussels merely added another expensive talking-shop to the bloc’s institutions, without any real power.

“The Committee of the Regions is a total failure. If you are not a state, you cannot get your issues onto the EU’s agenda,” said a former representative of one of Europe’s most autonomous regions, who spoke on condition of anonymity.

The big European regions such as Germany’s Laender maintain offices the size of embassies in Brussels to promote their interests, secure EU investment funds and lobby on legislation.

The Scottish and Catalan independence movements see European unity as a way of escaping the yoke of national governments. They want their own seat at the EU table, cutting out the middle-men in London and Madrid.

The economic crisis that began in 2008 has accelerated the twin forces of centralization and regionalism in Europe. It has sharpened resource conflicts between rich and poorer regions such as Dutch-speaking Flanders and French-speaking Wallonia in Belgium, but also in Italy and Germany.

Wealthy Bavaria and Hesse no longer want to subsidize poorer north and east German federal states and have challenged the country’s fiscal equalization system in court. Prosperous northern Italy, sick of paying for the southern Mezzogiorno, has imposed a system of fiscal federalism to limit the burden.

Voters in Scotland and Catalonia have turned to separatists in greater numbers partly in protest against austerity policies imposed by national political elites depicted as out of touch with ordinary citizens.

Scottish nationalist leader Alex Salmond is a master at tapping resentment against the London establishment. He joked last week that if he had known the leaders of all three British political parties were coming to Scotland to campaign for a “No” vote, he would have paid their bus fare.

The crisis has also fueled nationalist forces such as the UK Independence Party, France’s National Front and the Austrian and Dutch Freedom parties that want to withdraw from the EU and re-erect national borders against immigrants and imports.

“It is unlikely that the European Union, as it is at the start of the 21st century, has reached its final resting place,” Cooper wrote a decade ago. “For the long run the most important question is whether integration can remain a largely apolitical process.”

A further fragmentation of nation states would increase the strain on the EU’s decision-making system, risking sclerosis.

It is hard enough to get 28 member states to ratify treaties unanimously, some by referendum. With six more states in the Western Balkans seeking to join and the possibility of existing members breaking up, some experts fear the EU could become unmanageable.

Nicolas Levrat, an international law specialist at the Institute of Global Studies at Geneva University, sees a proliferation of micro-states driving the bloc to reform its governance.

“This multiplication of new states will force the EU to change the way states are represented in the EU,” he said. “What started for six (countries) and more or less works for 28 will definitely not work for 100.”

This multiplication of new states will force the EU to change the way states are represented in the EU…What started for six (countries) and more or less works for 28 will definitely not work for 100.” Yep, although we don’t have to wait for more member states before the big shake up in how the EU functions takes place. Shaking up the EU is the status quo:

New Europe onlineA break with the past
by Dan Alexe
13.09.2014 – 09:36

After the initial surprise, the Juncker Commission can now be judged for both its boldness and its weaknesses. Boosting the Eurozone economy was obviously the main goal behind its philosophy, and Juncker passed his first major test by presenting the new composition in an implacable, compact and elegant way. Upon announcing the distribution of jobs and portfolios, after a shrewd homage to Barroso, that was rather an exercise in diplomacy than a real tribute, it became clear that Juncker’s Commission will put a definitive end to Barroso’s amorphous bureaucratic machinery, which was shaken, refurbished and restructured.

The new Commission totally corresponds to Juncker’s own promises in front of the EU Parliament. It includes seven “super-Commissioners” in charge of what was initially called “clusters”, fields of competence regrouping various portfolios that cover similar fields or priorities.

The new College has thus seven Vice Presidents, six in addition to the High Representative for Foreign Affairs (Federica Mogherini), each leading a project team, or what was earlier called a “cluster”. Examples include ‘Jobs, Growth, Investment and Competitiveness’, ‘Digital Single Market’ or ‘Energy Union’.

For ensuring the necessary authority, the “super-Commissioners” are former heads of governments or former commissioners (such as Kristalina Georgieva).

One of the Vice Presidents, the Dutch Frans Timmermans, who is “First Vice President for better regulation, inter-institutional relations, rule of law and charter of fundamental rights,” will have practically absolute powers, as much as Juncker himself. Timmermans will be able to stop any initiative in the Commission and will have direct access to all DGs and to the human resources of the General Secretariat. He will actually be Juncker’s alter ego. As Juncker himself put it in the press conference that followed the presentation of the new college, the two of them will act as duumvirs, the combined presidency of two consuls with equal powers in Ancient Rome.

Under them, six other Vice Presidents with large powers over lower rank Commissioners (five, plus the Italian Mogherini, who, as High Representative, is automatically vice-president).

Led by Juncker from Luxembourg and Timmermans from the Netherlands, with extended powers bestowed upon the Bulgarian Kristalina Georgieva and the former prime ministers of Finland, Estonia, Latvia and Slovenia (plus the Italian Mogherini), the new Commission represents a victory for the smaller states, many of them Eastern European, and for Angela Merkel’s austerity policy.

There is no vice-president from either France, Spain or the UK. On the other hand, a country like Poland got, with Donald Tusk, the presidency of the Council, but has also obtained, with Elzbieta Bienkowska, the Internal Market and Industry portfolio. France, on the other hand, which fought hard to obtain the Economic and Financial Affairs for Pierre Moscovici, will have its Commissioner kept on a hierarchical and administrative leash, under permanent scrutiny from the duo Katainen-Dombrovskis, approved by Merkel.

The new Commission represents thus a victory for the smaller states and for Angela Merkel’s austerity policy. It is obvious that conflicts could arise from the present structure of the Commission, given the implicit hierarchy imposed by the existence of seven “ uper-commissioners” supposed to rein in the “normal” Commissioners. Thus, the French Moscovici would be right in feeling that the ruthless Finn Katainen will be watching him. In his position as Economy commissioner, Moscovici will be judge and accused at the same time, especially since his country, France, announced immediately after obtaining for him the job of Economy commissioner that it won’t manage to reduce its deficit under the 3% threshold next year, in 2015.

Finland’s ex-premier Katainen is the one who will supervise Moscovici’s activity. He was attacked, in March this year, by the Nobel Prize winner Paul Krugman, for having advocated “growsterity,” the idea that growth can come from austerity measures. Katainen is also rumoured to have been the one to suggest that Greece could pawn the Acropolis or the island of Corfu.

…

There are other attributions of portfolios that have raised eyebrows: the Hungarian Navracsics has thus been given the Citizenship and Education portfolio, while he was Justice minister under the very nationalist Hungarian premier Viktor Orban. Also, the Spanish new commissioner Cañete is criticised for having held sexist remarks, and also for owing shares in an oil company, while being offered the combined Energy and Climate portfolio… which is a contradiction in itself, while the environment has been clustered with fisheries.

There is also no Human Rights portfolio, in spite of what has been anticipated, but there is one for Migration and Internal Affairs cumulated. Nothing was foreseen in this Commission for dealing with the Roma issue, and the Monetary Affairs have also disappeared (“this is for the European Central Bank to handle”, said Juncker).

Another novelty is that the German language is now solidly reentering the institutions, including in the press room. German comes naturally to Juncker, thanks to his native Lëtzebuergesch; Martin Selmayr, head of Juncker’s team, is a German backed by Merkel; Germans like Martin Schulz, Manfred Weber and Elmar Brok (leaders of the EU Parliament, of its EPP faction and of its Committee on Foreign Affairs) closely control the Parliament; the new Council president, the Pole Donald Tusk, can manage German, while his English is shaky and he has no French; and German is the language in which Angela Merkel talks with Putin. The decline of French is thus abrupt, although Juncker himself favours French over English, and French is a language that both Timmermans and Mogherini practice well.

The otherwise massive German influence might also explain what could be a disappointing portfolio for the German Gunter Oettinger, who was in charge of the energy in the previous commission and who is now given the “Digital Economy and Society.”.

After a vote in the Parliament in October, the European Commission will take office on 1 November 2014.

Surprise! Now you have super-ministers! That just how things work in the ever evolving EU. As the article indicated, the radical overhauling of the structure of the European Commission is seen as a victor for the smaller states (since they got a large number of super-ministers) but also a victory for Angela Merkel and her question for endless austerity. So when the wealthiest regions secede and stop subsidizing their neighbors, the rest of the nation can collapse into a new round of austerity while both sides join the ever growing EU in a giant super-state increasingly run by super-ministers mandated to manage national policies on austerity-autopilot in a parliament increasingly dominated by Germany. Freeeeeedom!!!

Poverty should not be considered to be the acceptable collateral damage from fiscal adjustment he said and warned against indiscriminately adopting all policies seen as creating growth.

A quarter of Europe’s people, 124m, are at risk of poverty — the highest figure since the foundation of the EU. It had increased by 8m in the past four years, Mr Andor told a conference on ‘lessons from the crisis’.

“The crisis and the internal devaluation applied in many member states without prior social impact assessments provoked a deep and long economic contraction that led to the closing of factories, the reduction of wages and welfare programmes as a way of adjusting to the falling national income,” he said.

However, jobs and growth were not enough to reduce poverty — more than 116m were at risk of poverty in 2008 when growth was strong. And having a job did not prevent poverty either.

The number of working poor has been growing, as wages have stagnated or fallen in many parts of Europe, despite increased profits. When wages are not linked to an increase in productivity, inequality grows, Mr Andor said.

The growing differences between the better off and less well off countries threatens the economic performance of the eurozone, “because no union can function if its members drift apart”.

He also said that while EU member states have said they will cut the numbers of poor by 15% within six years, the current policies will not achieve this.

…

He also took issue with the idea that overblown welfare systems added to the crisis — “it originated in deregulated financial markets and bankers running amok” — and without social security nearly half of Europeans would be living in poverty.

Jean-Claude Juncker, the incoming head of the European Commission, unveiled an EU executive team today (10 September) that handed key economic responsibilities to French and British commissioners, but overseen by others, in a new-look hierarchy.

Appointing Britain’s Jonathan Hill to a brief including banks and the integration of EU capital markets was widely seen as a gesture to Prime Minister David Cameron, a vocal critic of Juncker and his support for a powerful Brussels that Cameron says could push the UK to quit the European Union.

Pierre Moscovici, the nominee of French President François Hollande, and a proponent of government spending to boost euro zone growth, will run economic and monetary affairs.

But in a sign of the balance struck between the competing interests of the 28 EU member states, both the economy and finance portfolios will be overseen by two vice-presidents on Juncker’s Commission.

Former prime ministers Jyrki Katainen of Finland and Valdis Dombrovskis of Latvia will be respective vice-presidents, with oversight of Jobs, Growth, Investment and Competitiveness and The Euro and Social Dialogue.

Both northern euro zone countries are allies of Angela Merkel, and backers of austerity.

Germany, as the economic powerhouse of the Union, will undoubtedly have a major say in its affairs. Berlin’s representative, the outgoing EU energy commissioner Günther Oettinger, will be responsible for the Digital Economy portfolio, notably the telecoms industry.

…

So who’s going to be the new “vice president” overseeing the new Employment Commissioner? The would bethis guy:

After championing a €300 billion investment package to boost growth in the EU at his confirmation hearing today (7 October), Jyrki Katainen was attacked by MEPs for Finland’s tough stance on austerity and eurozone bailouts during the financial crisis.

Katainen, former Finnish prime minister and finance minister, is Jean-Claude Juncker’s choice for Vice-President for Jobs, Growth, Investment and Competitiveness.

If Juncker’s new team is approved by MEPs, he will coordinate Commissioners overseeing, among others, financial services, economic and monetary affairs, industry and entrepreneurship.

Left-wing MEPs said his new focus on growth was incompatible with his support for austerity and cuts. They also demanded details of the investment package, which was promised by Juncker.

Katainen said he could not give too much detail about the investment package because the new Commission did not yet exist and he did not have time to meet the other Commissioners.

And he blamed Finland’s insistence on stringent bailout terms for Greece €110 billion rescue package and those for other crisis-hit member states such as Spain, Portugal and Ireland, on his Social Democrat coalition partners and public opinion.

Portuguese Socialist Elisa Ferreira said, “You assumed a moralistic stance that sinners must atone for their sins. Greece had to borrow to meet your demands.”

You proposed austerity, yet now your propose stimulus, she said before asking to applause, “Why? Where is the money coming from?”

Katainen said that austerity and growth were not mutually exclusive, and that confidence was a pre-condition for investment and growth.

“We have to reduce debt to increase growth. Governments were between a rock and hard place when defending their credibility and fighting to get their confidence back,” he said.

Now there is confidence, the time is right to invest, he said. “It’s not black and white between whether we need responsible financial policy or growth – we need both,” he added.
…

Note that when Katainen says “confidence was a pre-condition for investment and growth,” and “Now there is confidence, the time is right to invest”, he’s basicall backing the “confidence fairy” school of economics: when the economy is down, you must slash public spending and/or impose lower wages and other forms of austerity on the masses in order to get business confidence up. Once enough austerity has been imposed, businesses will be so tempted by all that new cheap labor that they won’t be able to resist the temptation to invest and start growing the economy again, although it will have to be export-based growth since the internal economy was just eviscerated in order to gain all that “confidence”. It’s nota very goodtheory.

Continuing…

…
Responding to further questions from Portuguese and Greek MEPs, Katainen said he had supported the hundred billion euro bailouts of those countries.

He said, “I was in favour of both packages, unlike some people in my country. It was highly unpopular […] people were very disappointed in Greece, in Portugal, in Spain, and in Ireland.”

“Both as prime minister and financial minister, I made sure my country participated in those packages.”

“Let’s stop remembering what has happened in the past and look to the future,” he added.

But many MEPs were not in a mood to forgive or forget, denouncing his support for a “failed” austerity policy.

Katainen said, “We need an unprecedented mobilisation of the public and private sectors, the Commission, the European Investment Bank and member states to pull together the €300 billion euro package.

“We need a fresh impetus for jobs, growth and investment, without creating new debt, and for that we will need to mobilise both public and private money in a new way,” he added.
…

Also note that Katainen isn’t joking when he suggests a debt-free stimulus. He’s currently recommending that France and Italy is that the should engage in stimulus spending without increasing public spending.

Continuing…

…
Katainen said that many of the details were yet to be ironed out and that, as part of the new Commission structure, he would met with the Commissioner he is leading to discuss different priorities and plans.

He also said that some of the financial instruments being looked at were “market-sensitive” and so could not be discussed at a public hearing at this stage.

But he did call for public/private partnerships, increased lending capacity for the European Investment Bank and other EU lending bodies, more “future investment” by EU nations in areas such as infrastructure and the completion of the single market, including in digital.

By taking these measures, and by intelligently ‘leveraging the EU budget – targeting public money at worthwhile projects not attractive private money – the EU could regain competitiveness and tackle its high unemployment.”

Udo Bullman, a German Socialist, said the European Parliament would back Katainen’s package if he made a commitment to come back before the committee before the end of the year. That commitment was not forthcoming.

…

Well, that’s one way to stimulate businesses: first trash economy, and then sell off increasing amounts of the public sector in place of a real stimulus program. And, best of all, it’s debt-free! Intheory! Let the confidence flow.

A peak into the minds of the EU’s sadomonetarists: “The readiness to make changes is higher if the population feels some pressure,…As soon as you have some success, the risk of complacency is much higher.”
Yes, the only way for a nation to achieve success is for an all-stick-no-carrot unyielding beat down. So says Germany’s finance minister:

The Wall Street Journal

Schaeuble, Summers Debate the Psychology of Economic Reform

By Paul Hannon
5:52 pm ET
Oct 9, 2014

WASHINGTON–Do Europeans need to have their backs to the wall before they will accept change, or would a period of growth and job creation make them more willing to do so?

That is one of the questions at the heart of the debate over what needs to be done to push the eurozone out of its lengthening period of very low inflation and anemic growth. And it got an airing Thursday during a panel here at the annual meetings of the International Monetary Fund.

On one side of the debate sat German Finance Minister Wolfgang Schaeuble on Thursday, a defender of the eurozone’s current strategy, which is to continue to cut budget deficits while pursuing structural changes to spur growth, such as altering labor-market laws to make it easier to hire and fire, and eliminating damaging distinctions between older workers with job security and younger people without jobs, or if they have them, very little security.

As the eurozone economy has weakened in recent months, that strategy has been questioned within and without the currency area. But in a panel discussion on the currency area’s predicament, Mr. Schaeuble was unmoved.

“European governments have to stick to structural reforms and the budget rules,” he said.

Speaking on the same panel, former U.S. Treasury Secretary Lawrence Summers disagreed.

“Virtually every year, growth is weaker than expected. You need a discontinuity in strategy,” he said. “We are dealing with something that approximates the Depression.”

But the disagreement over policy is in part based on different views of psychology. In Mr. Schaeuble’s view, the eurozone nations are unlikely to agree to the fundamental changes in the way labor and other markets operate unless they are experiencing the negative effects of an unreformed economy.

“The readiness to make changes is higher if the population feels some pressure,” he said. “As soon as you have some success, the risk of complacency is much higher.”

For Mr. Summers, people under pressure are unlikely to embrace change.

“Strengthening demand and avoiding deflation makes structural reforms easier,” he said. “I know of no case in which deflation has been a powerful spur to structural reform.”

…

As Mr. Schaeuble puts it, “the eurozone nations are unlikely to agree to the fundamental changes in the way labor and other markets operate unless they are experiencing the negative effects of an unreformed economy,” so if the public isn’t agreeing to the reforms the euro-elites desire those elites just need to go ahead and trash the economy in order to inflict the required amount of pain to gain agreement for said “reforms”. Unrelenting pressure. That’s the kind of collective psychology that Germany finance ministry thinks is required if the fundamental changes the austerians desire to see where the rich get richer and everyone else gets poorer because that’s how to maximize “competitiveness”. Unrelenting pain and pressure as the EU’s new M.O. .

Italy, France and Germany will face off over how to rebuild euro-area growth when the European Commission passes judgment this week on their draft budgets.

Germany may come under renewed pressure to switch from savings to investment, while France and Italy will again be confronted with the gap between their economic strategies and the currency bloc’s rules on fiscal discipline. On both ends of the debate, nations are likely to resist change to their own budget plans while calling on their neighbors to do more.

German Chancellor Angela Merkel has said that consolidating government budgets is the only way to “master the crisis permanently,” which limits the amount of available leeway. Italy counters that it needs room to limit the pain inflicted by the changes with the most long-term benefits.

As a result, the budget rules put nations under pressure to either limp along under current policy or go to battle over how to ease the short-term impact on voters, said Guntram Wolff, director of the Bruegel research group in Brussels.

“Someone in Germany would typically say if you don’t have pressure on the fiscal side, you’re never going to do the reforms,” Wolff said.“Italians would say, we have our back against the wall, we can’t pass any reforms because we can’t bail out the losers of those reforms.”

Five Countries

The Brussels-based commission has so far postponed holding countries’ feet to the fire on the euro-area budget rules, finding in October that no nation was at risk of breaking EU budget rules by a big enough margin to warrant immediate action. The move gave France and Italy more time to win approval for their draft spending plans, ahead of a Nov. 30 deadline for final opinions.

France and Italy, the euro area’s second- and third-largest economies, were among five countries the commission in October asked for more information about 2015 spending plans. Along with Austria, Malta and Slovenia, the nations have offered plans for future spending cuts and other economic measures designed to keep penalties at bay.

Countries in the euro bloc are obliged to bring their deficits to within 3 percent of gross domestic product and reduce debt to below 60 percent. France and Italy want a more flexible approach to take into account growth that’s bleaker than previously forecast, which they say makes the task of meeting the EU’s deadlines more difficult.

In past years, the EU has granted extra time when sought and has avoided confronting how to punish countries that repeatedly don’t meet the targets. France was given two extra years — until 2015 — to meet the 3 percent goal. Latest forecasts see the country not achieving that until 2017.

EU rules allow the commission to impose tougher monitoring and even financial payments, if conditions warrant.

.“Any extension of the deadline by which France must correct its excessive deficit and comply with the stability pact is acceptable only if Paris makes a clear and credible commitment to reform,” EU Digital Technology Commissioner Guenther Oettinger, a member of Merkel’s Christian Democrats, wrote in the Financial Times on Nov. 21. “Yes, some steps have already been taken. But these have been too few and not sufficiently ambitious. More is needed.”
…

Behold Jean-Claude Juncker’s “last chance” plan for the EU to drag itself out of economic doldrums: get the private sector to invest 300 billion euros for big infrastructure investments, where the EU public incurs the greatest risk and assumes “first losses”. So the big “last chance” plan involves another round of privatizing the gains and socializing the losses:

The TelegraphJean-Claude Juncker’s €315bn New Deal dismissed as a subprime gimmick
‘It’s unbelievable. The private sector will take governments to the cleaners,’ said Professor Charles Wyplosz

By Ambrose Evans-Pritchard, International Business Editor

6:21PM GMT 25 Nov 2014

The European Commission has launched a €315bn “New Deal” to pull Europe out of its economic slump over the next three years, but will provide almost no new money of its own and is relying on subprime forms of financial engineering.

.The shopping list of investments and infrastructure projects will take months to sift through, and the stimulus will not reach meaningful scale until 2016. The scheme has already run into a blizzard of criticism. It depends on leverage that increases the headline figure by 15 times, leaving EU taxpayers bearing the heaviest risk while private investors are shielded from losses.

Jean-Claude Juncker, the Commision’s embattled new president, has made the plan the centrepiece of his “last chance” drive to restore popular faith in the EU project, but it risks becoming an emblem of paralysis and failure instead.

“The money is chicken feed and it won’t do anything to kick-start growth,” said Professor Charles Wyplosz, from Geneva University. “It is unbelievable they are doing this rather than real fiscal expansion. The private sector will just take governments to the cleaners.

“This is really an excuse to pretend they are they doing something while the austerity is still going on. It will take too long to work and there will be a big fight over the projects as every country tries to get a share of the cake.”

The EU’s “College” of commissioners agreed to the plan on Tuesday in Strasbourg. It will be known as the European Fund for Strategic Investment (EFSI). Further details will not be released until Wednesday .but officials say privately that the package will be based on €21bn of EU money that will in theory lever almost €300bn of venture capital and private funds in a complex chemistry.

These will be used to build roads, renew railways, refine energy grids or upgrade high-speed internet, if the scheme goes according to plan. It requires the assent of EU leaders, and legislation next year. Like much of the macro-economic stimulus provided by the EU institutions, it is a fond hope rather than a hard commitment.

The projects are “higher risk” ventures that have been shunned by the European Investment Fund, jealous of its AAA rating. This places the issue of taxpayer risk squarely on the table. Governments have already sent a list of 1,800 possible projects to Brussels. These will be screened by a panel of independent experts. There will, in principle, be no national quotas.

The EU funds will mostly come from gutting the Commission’s research directorate and other parts of the existing EU budget, with €5bn in guarantees from the European Investment Bank (EIB). Werner Hoyer, the EIB’s chief, sought to play down what he called “exuberant” expectations.

The EU bodies will suffer the “first loss” if any project defaults, a device all too like the structured finance used in the heyday of the pre-Lehman boom, when Dublin became a hub for “special investment vehicles” (SIVs) that disguised the concentration of risk. The plans entail a de facto subsidy, but of a contentious kind. Critics call it “socialised loss, private gain”.

Charles Grant, director of the pro-EU Centre for European Reform, said Mr Juncker’s valiant efforts to do something substantive have been scuppered by powerful opponents. “It is yet another sad moment in the history of mismanagement in Europe. The Germans don’t believe in the scheme and they don’t want to provide any new money for it. They simply don’t get how bad things are in Europe,” he said. Britain has also opposed a full-scale spending spree.

Markus Ferber, finance spokesman for the German Social Christians (CSU), said the plan was fundamentally misguided. “The idea of a loss-liability means the EU member states are taking on new debt,” he said.

France’s economy minister, Emmanuel Macron, said the scheme needs “at least €60bn to €80bn of fresh money” to gain traction. Paris proposed use of the EU bailout fund (ESM) to raise finance for a much bigger spending blitz. This was blocked by Berlin, ever wary of eurobonds or fiscal union by the back door.

Mario Draghi, the head of the European Central Bank, has been pleading for EU fiscal authorities to launch a recovery package, warning that monetary stimulus cannot do the job alone. Yet it is far from clear whether this EFSI plan will move the macro-economic dial.

Mr Juncker’s hands have been tied from the start. Germany, Britain and other northern states have capped EU spending near €140bn a year until 2020, forcing Brussels to resort to shadow finance.

Angela Merkel has a message for the EU at a recent CDU party event: Berlin’s “wariness” of allowing its European partners to engage in government stimulus spending was not a case of “German pernicketiness”. No, it’s a matter of EU members maintaining credibility. “If we don’t do that . . . we will squander the trust we have won back”. Yes, in Angela Merkel’s mind, making lunatic demands that are divorced from economic history and reality is how you win back your credibility:

The Irish TimesMerkel cheered for stinging criticism of coalition partner
No show for Nicholas Sarkozy at CDU event after he was persuaded to stay away

Wed, Dec 10, 2014, 01:02

First published: Wed, Dec 10, 2014, 01:02

German chancellor Angela Merkel has secured her 15th straight year as head of the ruling Christian Democratic Union (CDU) with 96.7 per cent support, insisting her party is “good for Germany”.

…

In a 70-minute address, Dr Merkel earned cheers for attacking the “bankruptcy” of the Social Democratic Party (SPD), her Berlin ally, for joining a state coalition in Thuringia as junior partner under the hard-left Linke. “How much smaller does the SPD want to make itself?” she asked.

…

In her address, Dr Merkel said her major achievement in office was striking a balance between fiscal restraint and social responsibility, citing as proof Germany’s first balanced federal budget in four decades.

In Catholic Cologne, the Lutheran CDU leader dismissed claims that her balanced budget – dubbed the “black zero” – was a political holy eucharist to be “carried around and adored in a monstrance”.

Far more, she said, finance minister Wolfgang Schäuble’s success at balancing Berlin’s books was a far-sighted effort to secure Germany’s fiscal future. “We have called time on living on the never-never,” she said.

That Berlin’s wariness of debt-fuelled spending extended to its European partners was not a case of “German pernicketiness”, the chancellor added, but of EU members maintaining credibility by sticking to stability and growth rules beefed up in the euro crisis.

“If we don’t do that . . . we will squander the trust we have won back,” she said, warning that the crisis was far from over.
…

And then there’s the fact that even the European elites appear to be getting sick of the austerity-forever treatment. At least some of them. Sure, most of the elites probably lovethe “trickle down” nature of the endless austerity. Austerity just makes the rabble that much easier to manipulate. But for Europe’s elites there’s a growing problem: as part of the price for the Berlin-imposed austerity, the European elite’s traditional manipulation of their own rabble is increasingly being manipulated by Berlin too. In other words, as part of the price for making themselves even more elite relative to their rabble, Europe’s elite had to make themselves less elite relative to the new super-elite class that runs Europe.

So, eventually, could this super-elite manipulation of elite manipulation of the rabble become a problem? It’s one of the questions of the day for Europe. Especially if the elites that were previously in favor of handing over control to the European Commission/IMF/ECB “Troika” system control didn’t realize that the control was never going to be returned:

The Irish TimesIreland’s relationship with EU plunges to low ebb after U-turn on water metering
Revised water charges create conflict as troika pays Dublin a post-bailout visit

Arthur Beesley

First published: Mon, Dec 8, 2014, 01:10

Relations between Dublin and Brussels are at a very low ebb after a confrontation in the Department of Finance a fortnight ago over the new water scheme.

At issue upfront is the Government’s acute displeasure at questions publicly raised by a source close to the European Commission about the fraught decision to charge a flat rate for water.

However, the dispute reflects deeper tensions with the EU authorities. While the exchanges over water came as troika officials carried out a second post-bailout inspection of Ireland’s affairs, Dublin and Brussels have also been at loggerheads over fiscal policy and corporate tax.

The pretext is clear. The Government executed a huge about-turn on Wednesday, November 19th, when it cut the water rate and postponed metered charging. This was sensitive politically given the force of protests against the charge, the Government’s loss of support and its failure to capitalise on income tax cuts in the October budget.

A crucial consideration was to ensure the debts of Irish Water would remain off the State’s balance sheet.

Both the annual budget deficit and the national debt would increase if these liabilities remained on balance sheet, necessitating further retrenchment. The Government insists Irish Water will go off balance sheet but the decision is in the gift of Eurostat, the commission’s statistics arm, and it will not make a ruling until April.

Revised schemeThe day after the new plan was unveiled, a source close to the commission expressed concern to The Irish Times and other media that the revised scheme could jeopardise the Government’s fiscal planning.

The source said there was surprise at the move to suspend metered charging, and questioned the merits of a flat charge. The source also said Eurostat never issued provisional guidance to any member on its likely treatment of any initiative.

There was an angry response at the highest level within the Coalition after stories duly appeared, including the front-page lead item in The Irish Times on Friday, November 21st.

…

Quite what transpired remains unclear. By all accounts, however, a severe rebuke was delivered by a high-level Department of Public Expenditure official over the intervention by the source close to the commission. The exchange has been described as “difficult” and “tense”.

At one point a commission official is said to have declared that he did not like the “attitude” on the Irish side. His concerns were immediately dismissed. The European official was told – in uncompromisingly direct language – that there would be no change whatever in attitude or tone.

According to an informed source, a meeting scheduled that day between troika inspectors and secretaries general of Government departments was cancelled.

Intensify efforts
That afternoon a joint post-inspection statement was issued by the commission and the European Central Bank, and a separate statement was issued by the International Monetary Fund. There was no mention of water in the European statement.

Pointedly, however, the commission and the ECB said Ireland should intensify efforts to reduce the budget deficit leading up to the next election and beyond.

This, too, went down very badly in Irish political circles. A Minister said such demands were “difficult to comprehend” given the advancing recovery of the Irish economy.

…

Among many Irish concerns is the question as to whether the commission was seeking to become a protagonist in domestic debate.

At a time when the French government was insisting on its right to breach EU budget guidelines, the point was made that Ireland had met all targets. One year has passed since the Government reclaimed Irish sovereignty at the end of the bailout.

With external oversight strengthened in the wake of the crash, the battles to assert that sovereignty continue.

Ok, to summarize the Irish-EU water-metering fight:

…At one point a commission official is said to have declared that he did not like the “attitude” on the Irish side. His concerns were immediately dismissed. The European official was told – in uncompromisingly direct language – that there would be no change whatever in attitude or tone.
…Pointedly, however, the commission and the ECB said Ireland should intensify efforts to reduce the budget deficit leading up to the next election and beyond.
…
At a time when the French government was insisting on its right to breach EU budget guidelines, the point was made that Ireland had met all targets. One year has passed since the Government reclaimed Irish sovereignty at the end of the bailout.

With external oversight strengthened in the wake of the crash, the battles to assert that sovereignty continue.

That’s basically what happened to Ireland and, as we can see, Ireland didn’t really appreciate being told to “intensify efforts to reduce the budget deficit leading up to the next election and beyond” by the European Commission even after it officially left the bailout/Troika regime last year. Even Ireland’s elites seemed miffed and why not? Ireland’s elites don’t even get to rule over their own rabble anymore! They got downsized! Temporarily giving up sovereignty in order to get an outside force to decimate your nation’s public services might sound like a great deal for most fascistic national leaders, but only if it’s temporary.

This is all part of one of the great unknowns regarding the Euro-crisis: To what extent did pro-austerity Euro elites realize, in advance, that they were basically permanently handing over sovereignty to a Berlin-dominated European Commission when the Fiscal Compact and other austerity policies were voted into law. How many of them thought this was all just a one time, temporary smack down of the rabble?

Is there an “elite expectation gap”? If so, that could become an increasingly powerful force in European politics because, as Angela Merkel keeps making clear, Europe will respect her pan-European authority, one wayoranother:

German Chancellor Angela Merkel increased pressure on France and Italy to deliver extra economic reforms in exchange for more time to meet budget targets.

The European Commission “has made clear that that, which until now has been on the table, isn’t enough,” Merkel said in an interview with Die Welt am Sonntag. “I would subscribe to that view.”

France and Italy, the euro area’s second- and third-largest economies, have until March to bring the deficits in their 2015 budget plans into line with European Union rules. That largess was granted on condition the governments in Paris and Rome use the time to enact further legislation in pursuit of economic competitiveness.

“The commission has established a timetable for France and Italy to present further measures,” Merkel said. “That’s sensible, as both countries are currently in the middle of a process of reform.”

Italy’s long-term credit rating was lowered last week by Standard & Poor’s, which cited weak growth prospects and high public debt. The downgrade came even after Prime Minister Matteo Renzi won a key vote in the Senate on a plan to overhaul Italy’s labor rules.

In France, Finance Minister Michel Sapin said on Dec. 3 that an additional 3.6 billion euros ($4.4 billion) in budget cuts planned for next year mean that the deficit will decline to 4.1 percent in 2015. EU rules stipulate deficits shouldn’t exceed 3 percent of gross domestic product.

…

Yes, Angela Merkel just informed France and Italy that the austerity would not only continue, the austerity would have to increase in order to make up for their laggardly ways.

So here’s the template going forward:

European Commission to member state: Hey, cut your deficit to get it under 3% of GDP. Soon. It’s the rules.

Member state: Ok, but if we do that our economies will tank and the people will revolt and then the deficit, as a percentage GDP, is just going to rise.

European Commission: Ok, we’ll give you until March of 2015 to figure out how your going to get your deficit down to 3%. But, in exchange for our “largess” of extra time, Angela wants the new plans to include even more cuts to public even faster to ensure that the goals are met on time.

It’s not just endless austerity. It’s endlessly increasing austerity if you refuse to enthusiastically comply with the previous demands, no matter how crazy they may be. And no real authority for the elites to stop the bleeding even when the rabble is calling for blood.

Matt O’Brien at the Washington Post has a fascinating theory about the motivations driving Europe’s elite insanity: The EU elites want a “United States of Europe” eventually, one with the kinds of routine fiscal transfers you find in the US that would dramatically ameliorate the issues we’re seeing pop up the shared currency, but they’re convinced that the only way they can overcome the rabble’s political opposition to such a plan is to create an economic crisis so awful that creating a “United States of Europe” is the only option.

In other words, the incredible string of one economically inexcusable policy after another emerging from one EU leader after another over the past six years has all been acting, and the elites have a somewhat less insane long-term goal in mind: This period of mass insanity is just a temporary, but necessary, phase required to teach the rabble a lesson about how a not-very-United States of Europe is a bad thing!

At least that’s the theory. And let’s hope the theory is correct because it’s nice to imagine that the current euro-nightmare isn’t the long-term elite vision for Europe. Nice, albeit contextually disturbing, but still nicer than the idea that long-term plan is to have a Europe that’s destined to be ruled by junk-onomics forever.

The lesson from Greece: A 1930s-style depression creates 1930s-style politics

By Matt O’Brien January 26 at 10:02 AM

It’s never good when neo-Nazis who can’t even campaign because their leaders are in jail for murdering a political opponent still manage to come in third in your elections.

That’s what happened in Greece, though, after its mainstream parties discredited themselves by presiding over so much austerity that voters are willing to turn to quite literally anyone who promises to end it. That includes actual Nazis, crypto-Nazis, actual Communists, and former Communists like Syriza, who won power, though not an outright majority, with an unexpectedly strong 36 percent of the vote. It turns out that keeping a country in a 1930s-style depression creates 1930s-style politics.

Now let’s back up. It’s not like Greece needed any help getting itself into a depression. Its government borrowed too much money, lied about how much it was borrowing, and has such Kafkaesque regulations that starting a business or even hiring someone is, well, something of an odyssey. So when Greece had its Wile E. Coyote moment in 2010, there was always going to be a lot of economic pain. It had to cut spending and it had to regain competitiveness, whether or not Germany told it to. And the truth that nobody wants to hear is that Greece would have had to cut a lot more if not for all the “austerity” imposed on it, which was really a bailout that gave it more money than it would have otherwise had.

…

Keep in mind hhat Greece probably wouldn’t have accumulated nearly as much debt if it hadn’t joined the eurozone in the first place and the official ‘book cooking’ was done (with some help from Wall Street) specifically in order to meet the eurozone’s requirements. Plus, it’s not like these deals were actuallya secret. So there’s a lot of responsible to spread around here.

Continuing…

…
Austerity, in other words, isn’t what Europe deserves blame for in Greece. Hard money is. Or, if you want to go all the way back, creating the euro in the first place when textbook economics said a crisis like this was inevitable if they did. We’ll get there in a minute. First, though, let’s talk about what “competitiveness” means. It’s pretty simple, actually: It’s how much you get paid for doing a certain amount of work. Greece’s problem was that, in the aftermath of its government bubble, its wages were too high, relative to Germany’s, for what its workers were doing. That realistically left it with three options. Either Greece could cut its wages while Germany kept its the same, Greece could keep its wages the same while Germany increased its, or they could meet somewhere in the middle. (The fourth option, which you can’t really plan on, is that Greece’s workers could have suddenly become a lot more productive).

This was the difference, for Greece, between, if not a Great Recession and a Great Depression, at least a Lesser Depression and a Great Depression. Think about it this way. People, you might have noticed, don’t like taking pay cuts, so you have to fire them to get them to do so. But higher unemployment only lowers GDP, which makes debts harder to pay back. It’s self-defeating. That, though, is what Europe chose for Greece. Germany, you see, is so afraid of the inflation under its bed that it would rather force Greece to adjust its wages all the way down than adjust its own wages any of the way up. That’s why the ECB raised interest rates twice in 2011 to fight mostly-phantom inflation, and is only now about to start buying bonds on a large scale. It’s no surprise, then, that German inflation isn’t anywhere close to its just-below-2-percent target, but has instead fallen all the way to 0.1 percent—which means Greece needs negative inflation to regain competitiveness. And that’s what it’s gotten, with Greek prices now falling 2.6 percent. So Europe’s tight money has more than undone the good from Europe’s bailout. Indeed, Greece’s economy has shrunk 27 percent, its unemployment rate has hit 28 percent, and its youth unemployment rate is over 50 percent.

Europe isn’t panicking, though, because things are going according to plan. Or at least close enough. Any economist could have told them, and plenty of them did, that something like this was bound to happen if countries share monetary, but not fiscal, policy. That’s because, at some point, one country will need hard and another one will need loose money. And whichever one loses out will spiral out of control if there aren’t fiscal transfers to slow them down or speed them up. But the common currency doesn’t have these kind of shock absorbers. That means the euro not only pushes country into, but also keeps them stuck in depressions.

Think about Greece. It wouldn’t have been able to borrow nearly as much money to begin with if it weren’t in the euro. Its borrowing costs wouldn’t have spiked anywhere near as much if it’d been able to print its own money. And it could have devalued its way to competitiveness overnight instead of deflating over years, saving itself a lot of unemployment. So why, you’re probably wondering, is this part of the plan? In five words, a United States of Europe. Elites want to create one, complete with a joint treasury, but nobody else does. But they hope that will change if the only way out of the crisis they walked into with at least one eye open is to build the single state they want. It’s a process that began 60 years ago when France and Germany decided to share their coal and steel—making it harder for one of them to re-arm—and it might be another 60 it ends in a European government. But that’s okay, that’s the plan. (Which is why, as Dan Davies points out, that Europe never expects Greece to pay it back, even though it can’t say that, since everyone will pool their debts some day in the maybe-not-so-far future).

There’s only one flaw in Europe’s plan. It’s the politics, stupid. You can’t keep a country in a never-ending slump, or close enough to it, and not expect them to revolt. And when it does happen, odds are you won’t like the people leading it, either. Take Greece’s mainstream parties, the center-left Pasok and the center-right New Democracy. They were bastards, but they were Europe’s bastards. They ruled Greece as a corrupt duopoly, you see, and they deserved to lose. But they were at least willing to do what they were told for the sake of the common currency. That includes taking turns clutching the political grenade that is austerity. As you can see above, their combined share of the vote fell from 77 percent before the bailout began to 42 percent after they started implementing it to just 32.5 percent today. Europe’s strategy, in other words, hasn’t just been economically self-destructive, but politically, too. Forcing mainstream parties to follow failed policies only discredits them. The same thing happened in the 1930s when the establishment was only willing to leave the gold standard when staying on it had failed as much as it could.

And, then as now, this only concedes the economic high ground to the crazies. Now, Greece might have gotten lucky if Syriza, despite its mix of former and not-so-former Marxists, turns out to be not so radical. Its demands certainly aren’t. It wants more debt relief, which Greece has already gotten a lot of, and more social spending to fight their health and hunger crises. That should put Syriza firmly in the center-left, just with a little more emphasis on the left part. But if it fails, things could start to get a lot uglier. There are the neo-Nazis, who despite being on trial for murder, still came in third with 6.3 percent of the vote. The right-wing Independent Greeks, who are only a hop, skip, and a swastika away from being neo-Nazis themselves, at 4.75 percent. (Their leader, to give you an idea, made up a story about Jewish people getting special tax breaks). And then there are the real, live Communists, as in waving the hammer-and-sickle flag, at 5.5 percent. None of these are that big on their own, but if you add in all the smaller parties of fellow travelers—presumably Leninist-Marxists instead of Marxist-Leninists—you’re talking about 20 percent of the vote going to the far-left and the far-right. And that’s not even including Syriza.

…

The irony, of course, is that the euro was supposed to be a paper monument to peace and prosperity that brought people together. But, for now at least, it’s made prosperity impossible and driven them apart instead, reviving old prejudices, stirring new ones, and making people more, not less, nationalistic.

So much for a United States of Europe.

So is the plan to drive Europe into such a deep and painful economic slump that the rabble just gives up on any of their attachments to national sovereignty and decides to embrace a much more deeply integrated “United States of Europe” model? That theory does seem to fit what’s actually happening so it’s certainly a possibility. And a “United States of Europe” model definitely has the potential to result in a lot more economic and social justice than the current “no fiscal transfers without austerity!” garbage models.

If true, this is also one of the most Machiavellian methods for achieving a policy that you can imagine: Intentionally abusing the population for decades while you feed their fears of ‘lazy Greeks’ and hyperinflation all in order to create a situation so bad that the rabble basically capitulates itself into a new paradigm. And yet, since that horror scenario fits what’s happening now we certainly can’t rule O’Brien’s theory out.

It’s also worth keeping in mind that, even though a “United States of Europe” model could work a lot better for Europe, it’s not a guarantee that things will actually get better. A “United States of Europe” can divide and conquer itself too. It fits the data.

Jeroen Dijsselbloem, the Dutch chairman of the euro-zone finance chiefs’ group, categorically ruled out making a partial aid payment in exchange for a narrower program of reforms after a stormy meeting in Riga, Latvia, in which Varoufakis was heavily criticized by his euro-area colleagues over his failure to deliver economic reforms.

Euro-area finance chiefs said Varoufakis’s handling of the talks was irresponsible and accused him of being a time-waster, a gambler and an amateur, a person familiar with the conversations said, asking not to be named because the discussions were private.

“It was a very critical discussion and it showed a great sense of urgency around the room,” Dijsselbloem said at a press conference after the meeting. Asked if there was any chance of a partial disbursement, he said, “The answer can be very short: No.”

Varoufakis said the two sides have come “much closer together” and Greece is aiming for a deal as soon as possible.

Draghi Pressure

European Central Bank President Mario Draghi added to the pressure on the Greek finance chief warning that policy makers may review the conditions of the emergency funding keeping his country’s banks afloat.

Euro-area governors will “carefully monitor” the haircuts imposed on Greek banks’ collateral when borrowing from the Bank of Greece, Draghi said, to take into account the “change in the environment.” The governing council is due to discuss the matter on May 6, according to two people with knowledge of the talks.

“The higher are the yields, the bigger is the volatility, the more collateral gets destroyed,” he said. “Time is running out as the president of the Eurogroup said, and speed is of the essence.”

…

Bypass Veto

The 19-nation bloc’s finance ministers were riled after Greek Prime Minister Alexis Tsipras tried to bypass their veto on financial aid with an appeal to Angela Merkel on Thursday. Tsipras sought to circumvent the finance ministers’ authority, pleading his case with the German Chancellor and French President Francois Hollande on the sidelines of a summit on immigration in Brussels.

Under euro-area procedures, it’s the finance ministers who have to sign off on any aid disbursement and Merkel said last month she’s not prepared to override those controls.

…
The 19-nation bloc’s finance ministers were riled after Greek Prime Minister Alexis Tsipras tried to bypass their veto on financial aid with an appeal to Angela Merkel on Thursday. Tsipras sought to circumvent the finance ministers’ authority, pleading his case with the German Chancellor and French President Francois Hollande on the sidelines of a summit on immigration in Brussels.

Under euro-area procedures, it’s the finance ministers who have to sign off on any aid disbursement and Merkel said last month she’s not prepared to override those controls.
…

Portugal’s recent elections are starting to look rather moot. Following initial calls of victory for the ruling pro-austerity right-wing party, which garnered 38 percent of the vote vs 32 percent for the anti-austerity socialists, it turns out that it’s the socialists that are able to cobble together enough parties into a majority coalition. And despite the fact that Portugal is no longer officially under the Troika’s control, the fact remains that Troikan policies are still the law of the land.

So does an anti-austerity ruling coalition mean that we’re about to see a Portuguese version of Greece’s recent showdown with the Troika? Uh…well…if so, that comes later. At this point, we’re just waiting to see if the anti-austerity coalition is even going to be allowed to take power since its up to Portugal’s constitutional president to appoint a new government. And, so far, it’s looking like he’s going to reappoint the pro-austerity ruling party, citing fears that allowing an anti-austerity coalition that won a majority of the votes would violate the Fiscal Compact and piss off the international financial markets. That’s seriously his reasoning:

The TelegraphEurozone crosses Rubicon as Portugal’s anti-euro Left banned from power
Constitutional crisis looms after anti-austerity Left is denied parliamentary prerogative to form a majority government

By Ambrose Evans-Pritchard

4:30PM BST 23 Oct 2015

Portugal has entered dangerous political waters. For the first time since the creation of Europe’s monetary union, a member state has taken the explicit step of forbidding eurosceptic parties from taking office on the grounds of national interest.

Anibal Cavaco Silva, Portugal’s constitutional president, has refused to appoint a Left-wing coalition government even though it secured an absolute majority in the Portuguese parliament and won a mandate to smash the austerity regime bequeathed by the EU-IMF Troika.

He deemed it too risky to let the Left Bloc or the Communists come close to power, insisting that conservatives should soldier on as a minority in order to satisfy Brussels and appease foreign financial markets.

Democracy must take second place to the higher imperative of euro rules and membership.

“In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of NATO,” said Mr Cavaco Silva.

“This is the worst moment for a radical change to the foundations of our democracy.

“After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets,” he said.

Mr Cavaco Silva argued that the great majority of the Portuguese people did not vote for parties that want a return to the escudo or that advocate a traumatic showdown with Brussels.

This is true, but he skipped over the other core message from the elections held three weeks ago: that they also voted for an end to wage cuts and Troika austerity. The combined parties of the Left won 50.7pc of the vote. Led by the Socialists, they control the Assembleia.

The conservative premier, Pedro Passos Coelho, came first and therefore gets first shot at forming a government, but his Right-wing coalition as a whole secured just 38.5pc of the vote. It lost 28 seats.

The Socialist leader, Antonio Costa, has reacted with fury, damning the president’s action as a “grave mistake” that threatens to engulf the country in a political firestorm.

“It is unacceptable to usurp the exclusive powers of parliament. The Socialists will not take lessons from professor Cavaco Silva on the defence of our democracy,” he said.

Mr Costa vowed to press ahead with his plans to form a triple-Left coalition, and warned that the Right-wing rump government will face an immediate vote of no confidence.

There can be no fresh elections until the second half of next year under Portugal’s constitution, risking almost a year of paralysis that puts the country on a collision course with Brussels and ultimately threatens to reignite the country’s debt crisis.

The bond market has reacted calmly to events in Lisbon but it is no longer a sensitive gauge now that the European Central Bank is mopping up Portuguese debt under quantitative easing.

Portugal is no longer under a Troika regime and does not face an immediate funding crunch, holding cash reserves above €8bn. Yet the IMF says the country remains “highly vulnerable” if there is any shock or the country fails to deliver on reforms, currently deemed to have “stalled”.

Public debt is 127pc of GDP and total debt is 370pc, worse than in Greece. Net external liabilities are more than 220pc of GDP.

“The president has created a constitutional crisis,” said Rui Tavares, a radical green MEP. “He is saying that he will never allow the formation of a government containing Leftists and Communists. People are amazed by what has happened.”

Mr Tavares said the president has invoked the spectre of the Communists and the Left Bloc as a “straw man” to prevent the Left taking power at all, knowing full well that the two parties agreed to drop their demands for euro-exit, a withdrawal from Nato and nationalisation of the commanding heights of the economy under a compromise deal to the forge the coalition.

President Cavaco Silva may be correct is calculating that a Socialist government in league with the Communists would precipitate a major clash with the EU austerity mandarins. Mr Costa’s grand plan for Keynesian reflation – led by spending on education and health – is entirely incompatible with the EU’s Fiscal Compact.

This foolish treaty law obliges Portugal to cut its debt to 60pc of GDP over the next 20 years in a permanent austerity trap, and to do it just as the rest of southern Europe is trying to do the same thing, and all against a backdrop of powerful deflationary forces worldwide.

The strategy of chipping away at the country’s massive debt burden by permanent belt-tightening is largely self-defeating, since the denominator effect of stagnant nominal GDP aggravates debt dynamics.

It is also pointless. Portugal will require a debt write-off when the next global downturn hits in earnest. There is no chance whatsoever that Germany will agree to EMU fiscal union in time to prevent this.

The chief consequence of drawing out the agony is deep hysteresis in the labour markets and chronically low levels of investment that blight the future.

Mr Cavaco Silva is effectively using his office to impose a reactionary ideological agenda, in the interests of creditors and the EMU establishment, and dressing it up with remarkable Chutzpah as a defence of democracy.

The Portuguese Socialists and Communists have buried the hatchet on their bitter divisions for the first time since the Carnation Revolution and the overthrow of the Salazar dictatorship in the 1970s, yet they are being denied their parliamentary prerogative to form a majority government.

This is a dangerous demarche. The Portuguese conservatives and their media allies behave as if the Left has no legitimate right to take power, and must be held in check by any means.

These reflexes are familiar – and chilling – to anybody familiar with 20th century Iberian history, or indeed Latin America. That it is being done in the name of the euro is entirely to be expected.

…

“Mr Cavaco Silva is effectively using his office to impose a reactionary ideological agenda, in the interests of creditors and the EMU establishment, and dressing it up with remarkable Chutzpah as a defence of democracy.”
Yep. That’s one more victory for the eurozone.

Dutch finance minister Jeroen Dijsselbloem warned that countries which fail to adequately guard Europe’s borders and do not take in a fair share of refugees could find themselves outside the borders of a future “mini-Schengen” zone.

In an interview in Belgian business dailies De Tijd and L’Echo on Friday, Dijsselbloem, who is also the chair of the euro zone group of finance ministers, said the EU’s passport-free Schengen zone could not work if only a few countries gave shelter to refugees.

“There are a few countries that are carrying the heaviest burden in the asylum crisis, taking in the most refugees,” he told the papers, naming Sweden, Germany, Austria, Belgium and the Netherlands.

“Some countries are now saying, ‘It’s not our problem. It’s yours. Good luck.’ That places our solidarity under huge pressure,” he said.

Many members of the 26-country Schengen zone, particularly poorer Eastern European ones, oppose a European Commission plan to distribute refugees who have arrived in Europe since the start of the year.

Poland’s newly elected government has said the risk of militant attacks in the wake of the Paris shootings makes it harder for it to shelter asylum seekers fleeing war and poverty in the Middle East.

Dijsselbloem said his aim was to preserve the Schengen zone, but if countries did not shoulder their fair share, others would have to go it alone, since the migrant influx would otherwise endanger their generous welfare states.

“To preserve them, you need to guard the external borders. (Otherwise) loads of people come and demand support and they blow the system up. That is what is happening now in the Netherlands,” he said.

He called for more joint investment in guarding the EU’s external borders and for more support for refugee camps in Turkey and Lebanon.

“If we do not do it in the external borders of the EU’s 28 members, or in the Schengen zone, then maybe we will have to do it on the level of a mini-Schengen zone,” he said, adding he wanted to avoid that outcome.

The Netherlands first floated the idea of a passport-free inner core earlier this month, though Germany, without which such a plan would be unworkable, immediately distanced itself from the proposals.

On Wednesday, Jean-Claude Juncker, the head of the EU’s executive, warned that the fate of the Schengen zone was bound up with that of the euro single currency: the one would not survive the failure of the other.

…

“On Wednesday, Jean-Claude Juncker, the head of the EU’s executive, warned that the fate of the Schengen zone was bound up with that of the euro single currency: the one would not survive the failure of the other.”
That’s a pretty ominous warning from Jean-Claude Juncker: If you kill the Schengen zone, you just might kill the eurozone in the process. And if that sounds like an extreme consequence of ending freedom of travel within Europe, keep in mind that the current Schengen zone includes twnty six nations, but the proposed mini-Schengen zone might be closer to five nations:

ReutersDutch government floats ‘mini-Schengen’ idea to EU partners

AMSTERDAM | By Toby Sterling
Thu Nov 19, 2015 8:43am EST

The Dutch government has debated internally and with its allies a plan to introduce passport checks at the borders of several Western European countries in a bid to control an influx of migrants and refugees.

The idea of carving out a “mini-Schengen” within the Schengen area would seem to violate the treaty guaranteeing free travel within 26 European countries.

The European Commission, the EU’s executive arm, has received no formal proposals regarding the creation of a “mini-Schengen” zone within the existing passport-free area, a Commission spokeswoman said on Thursday.

Europe is struggling to cope with its biggest migration crisis since World War Two.

German Interior Minister Thomas de Maiziere told a news conference in Berlin on Thursday that his Dutch counterpart had raised the idea with him, but Germany was not enthusiastic.

“Our political goal must be that the Schengen area as a whole functions,” he said. “Everything else would just be supplementary considerations.”

The Dutch plan is separate from a French plan to introduce systematic border checks within the Schengen area as a security measure after the attacks in Paris last week.

The “mini-Schengen area” would include Austria, Germany, Belgium, Luxembourg and the Netherlands, and would involve setting up transit camps for migrants outside those borders, a report in newspaper De Telegraaf said.

Foreign Minister Bert Koenders confirmed those details in part to the paper, but said other measures were also under consideration.

“The Netherlands and other countries are talking about many different solutions,” said spokeswoman Janet Takens of the Justice Ministry, which oversees immigration policy.

“We are talking with like-minded countries on a regular basis,” she said, declining to provide details.

…

“The “mini-Schengen area” would include Austria, Germany, Belgium, Luxembourg and the Netherlands, and would involve setting up transit camps for migrants outside those borders, a report in newspaper De Telegraaf said.”
From twenty six Schengen members down to five. That’s quite a downgrade for a core European prize.

But something to keep in mind with this proposal is that it has a great deal of overlap with another idea for radical changes that’s been bandied about in recent years (especially during a crisis): the creation of a “two-tiered” eurozone, with different monetary policies and rules for the wealthy “core” and a second-tier “periphery”. And the five nations that would be part of the new “mini-Schengen” also happen to be the five eurozone countries that would almost certainly become part of a eurozone “core” (France is missing from the list, but that’s it). So when we hear warnings that ending the Schengen zone as it exists today would also kill the eurozone, that’s likely true but it would only kill the eurozone as it exists today. If the establishment of the “mini-Schengen” coincided with the creation of the two-tiered eurozone…well, that could conceivably happen. Sure, it would be a giant nightmare to suddenly break up both the Schengen zone and eurozone simultaneously and immediately replacing them with new systems, but the current eurozone is also a pretty big nightmare, hence all the prior speculation about breaking it up into two tiers before refugee really took hold. Plus, if those five nations broke off to form their own mini-Schengen, it’s not like the other 21 nations have to suddenly stop accepting free travel with each other. In other words, the creation of a “mini-Schengen” might just shrink the existing Schengen zone, but not kill it.

And don’t forget that Germany’s powerful finance minister Wolfgang Schaeuble has been pleading for a eurozone “core” with more rapid integration for years. Including last year:

ReutersTwenty years on, Schaeuble pleads again for core Europe
PARIS

Mon Sep 1, 2014 4:38pm BST

German Finance Minister Wolfgang Schaeuble renewed a call for a core group of European Union countries to move ahead faster with economic and political integration, 20 years after his ground-breaking proposal fell on deaf ears in key partner France.

In an article published in the Financial Times on Monday, Schaeuble proposed creating an EU commissioner with the power to reject national budgets that breach the bloc’s fiscal rules, and establishing an inner-core parliament for the euro zone.

“In order to make progress in all of these areas, we should keep using the approach that proved its mettle back in 1994: to establish cores of co-operation within the EU that enable smaller, willing groups of member states to forge ahead,” Schaeuble wrote in the article, co-authored by fellow German Christian Democrat Karl Lamers.

The centre-right pro-European members of Chancellor Angela Merkel’s party said the EU had already taken that direction with the launch of the euro currency.

They acknowledged that many EU countries remain reticent about closer political union that would involve transferring more sovereignty to Europe.

…

The original Schaeuble-Lamers plan for a “core Europe” to forge ahead with political union, published in Le Monde in 1994, drew an embarrassed silence from the French authorities, then divided between ailing Socialist president Francois Mitterrand and a conservative government led by Edouard Balladur.

While France and Germany jointly laid the foundations for post-war European integration, Paris has twice drawn back from closer political union, rejecting a European defence community in 1954 and a proposed EU constitution in 2005.

“In order to make progress in all of these areas, we should keep using the approach that proved its mettle back in 1994: to establish cores of co-operation within the EU that enable smaller, willing groups of member states to forge ahead.”
That was the call from Germany’s powerful finance minister last September and this is from someone arguably more powerful and influential in Berlin than Angela Merkel. So the establishment of some sort of “core” it’s pretty clearly a top priority for at least some in Berlin and at appears that Schaeuble would prefer to see such a “core” formed sooner rather than later.

So while talk of a “mini-Schengen” zone might seem outlandish given the ways it would fundamentally break not just a core European prize (freedom of travel) but also the eurozone, don’t forget that breaking the EU and eurozone (and then remaking them) is still very much on the agenda.

Back in October, the EU Commission issued a desciption of the next phase of integration for the eurozone while placating demands from Berlin: The eurozone has the goal of establishing of a “fiscal board” next year with the power to impose financial sanctions on eurozone members that don’t reduce their deficits as much as the EU rules mandate. And, of course, German Finance Minster Wolfgang Schauble complained that this wasn’t enough and an independent board needs to be set up with the power to monitor budgets and issue sanctions. In other words, the highly political nature of the monitoring budgets and judging national spending plans (like how much is spent on social services) should be depoliticized and permanently handed over to a technocratic institution with a blind mandate to enforce budget caps:

The Wall Street JournalEU to Create Fiscal Board to Advise on Budget Policies
European Commission wants single seat on IMF executive board for eurozone by 2025

By Gabriele Steinhauser
Updated Oct. 21, 2015 12:31 p.m. ET

BRUSSELS—The European Commission on Wednesday set out its next steps for strengthening the Continent’s embattled currency union, saying it would create a fiscal board to help steer its rulings on national budgets and propose a system for backing up national deposit-guarantee funds before the end of the year.

The European Union’s executive arm has been facing resistance to some of its plans for deepening integration in the 19-country eurozone, partly due to divisions between fiscal hawks, such as Germany and Finland, and countries like France and Italy, which want the bloc to ease austerity.

At the same time, governments preoccupied with dealing with large flows of migrants into Europe are reluctant to question national powers on the economic front at the same time.

Nevertheless, the commission’s vice president for the euro, Valdis Dombrovskis, said strengthening the support and oversight mechanisms of the eurozone was necessary, given high levels of unemployment—nearly 18 million of the bloc’s workers are without jobs. “The recovery is still to be felt by many people in Europe,” Mr. Dombrovskis said.

In its proposals Wednesday, the commission sought to balance national concerns, treading particularly carefully around Germany’s fears it will end up paying for financial and economic problems in its eurozone neighbors.

Partly in response to demands from Berlin, the commission said it would set up a European Fiscal Board to help steer decisions on national budgets as well as the fiscal path for the entire eurozone.

The commission already scrutinizes national budgets every year and can ask governments to revise their spending plans. If a country fails to cuts its debts and deficits according to EU rules, the commission can impose financial sanctions.

But German Finance Minister Wolfgang Schäuble has complained that the commission is less strict with large players such as France, Italy and his own country and has called for an independent fiscal board to take budget decisions instead of the commission. Wednesday’s plans fall short of that demand, giving the board merely an advisory role and leaving the judgment of national spending plans to the commission.

Mr. Dombrovskis didn’t give a precise date for when the fiscal board would take up its work, saying only that “the aim is for the board to start operating next year.”

…

“But German Finance Minister Wolfgang Schäuble has complained that the commission is less strict with large players such as France, Italy and his own country and has called for an independent fiscal board to take budget decisions instead of the commission. Wednesday’s plans fall short of that demand, giving the board merely an advisory role and leaving the judgment of national spending plans to the commission.”

So that was the proposal back in October, with the expect complaints from Berlin that the plan doesn’t leave austerity policies on “independent” auto-pilot quite enough. But also note that it wasn’t just individual member states that would be overseen by the EU’s proposed board. It would also “help steer decisions on national budgets as well as the fiscal path for the entire eurozone.” Given that, it’s worth noting that the EU Commission issued another decree last month about a significant change it would like to see in Germany’s fiscal policies, although its unclear if the proposed fiscal board would have any power to enforce the decree: Germany and the Netherlands needs to stop squelching demand and spend more:

ReutersGermany should invest more to help euro zone grow – Commission

BRUSSELS | By Jan Strupczewski

Thu Nov 26, 2015 8:01am EST

Germany and the Netherlands, which have big current account surpluses, should invest more to help boost economic growth and inflation in the whole euro zone, the European Commission said on Thursday.

The Commission, the European Union’s executive arm, analysed the economies of all 28 EU countries in an annual exercise called the macro economic imbalances procedure, aimed to identify problems early and address them before they grow.

It said that to boost the euro zone’s moderate economic recovery and persistently low inflation, governments should focus next year on investment, structural reforms and sound public finances.

The responsibility for more investment, however, was mainly with those who could afford it best — the Germans and the Dutch — that would also benefit from a rebalancing of their own economies.

“The risk of protracted low growth and low inflation at euro-area level should be mitigated especially by countries that are better placed to boost investment,” the Commission said.

“This is the case of Germany and the Netherlands whose current account surpluses are forecast to remain high in the coming years,” it said, adding the persistence of very high surpluses pointed to a lack of domestic sources of growth.

The Commission believes that a current account surplus higher than 7 percent of gross domestic product is excessive and Germany already last year had a surplus of 7.8 percent.

This year Germany will record a surplus of 8.7 percent, the Commission said, 8.6 percent in 2016 and 8.4 percent in 2017.

The surplus of the Netherlands is even higher — it has been well above 10 percent of GDP since 2012 and is only to ease to 9.6 percent in 2017.

MISALLOCATION OF RESOURCES

“The persistence of sizeable current account surpluses in countries with relatively low deleveraging needs implies large savings and investment imbalances, pointing to a misallocation of resources,” the Commission said.

The remarks are unlikely to go down well in Germany, the world’s biggest exporter, which believes its export-oriented economy is running well and wants to calibrate additional investment in a way that would not clash with cutting debt.

German officials also believe that more spending by Europe’s biggest economy alone will not solve the growth problems of the single currency area and that other governments should do their homework too by implementing structural reforms.

The Commission agreed that “countries of systemic relevance” like Italy and France must step up structural reforms but noted those with high debt, like Italy, or a current account deficit like France, would benefit from the additional demand the surplus countries could create.

“A reduction of surpluses in countries with relatively low deleveraging needs would bring a much needed improvement in demand in the euro area and help ease the trade-off faced by highly indebted countries,” the Commission said.

It said the euro zone had one of the world’s largest current account surpluses in value terms, expected to reach some 390 billion euros, or 3.7 percent of its GDP.

The bulk of it is created by Germany and the Netherlands, whose contribution represents 2.5 percent of euro zone GDP and 0.7 percent respectively. The third biggest is Italy which adds 0.4 percent of euro zone GDP to the overall surplus number.

“The risk of protracted low growth and low inflation at euro-area level should be mitigated especially by countries that are better placed to boost investment.”
Yes, in a union, those running high current account surpluses should probably be the drivers of new demand in the midst of a chronic demand shortage instead of simply imposing more demand-cutting austerity on the weakest union members. What a radical concept.

And, of course, to folks like Bundesbank president Jens Weidmann who recently commented on Germany’s chronic massive current account surpluses, the demand that Germany increase its domestic demand is indeed a radical concept. Instead, as Weidmann puts it below, the EU should just accept that Germany’s large current account surplus, while a “challenge”, is due to factors like the falling value of the euro (and we’re also presumably supposed to ignore the impact of the permanent and dramatically lowered the value of Germany’s currency as a consequence of joining the eurozone) and isn’t the result of protectionist economic policies (again, we’re just supposed to ignore the devalued currency that comes from simply joining the eurozone and Germany’s national policies intended to suppress wages to increase “competitiveness” started over a decade ago).

So, according to Weidmann, chronic massive account surpluses are a challenge, but one that should just be endured. Instead, the real rebalancing act isn’t about rebalancing chronic current account surpluses and deficits. It’s about rebalancing “liabilities” and “control”. Specifically, in order to rebalance the eurozone in the long run, some sort of “fiscal transfers” maybe be required from the wealthier nations to weaker nations, an idea Weidmann haslong opposed. But, of course, in order to maintain the “balance” between “liability” and “control”, those countries on the receiving end of the transfers need to give up control:

The Wall Street JournalHigh Current-Account Surplus Is an Economic Challenge, Says ECB’s Weidmann
German current-account surplus more than 8% of GDP

By Todd Buell
Dec. 10, 2015 1:30 p.m. ET

FRANKFURT—A high current account surplus poses a challenge, but still isn’t as dangerous as a high current-account deficit, Germany’s top central banker said in prepared remarks Thursday.

…

“A surplus of more than 8% of GDP, such as we are currently seeing in Germany, is an economic challenge, too,” he said in remarks prepared for delivery to an audience in Lisbon.

Germany’s current account surplus has come under fire for years from international critics who say that the German economy relies too much on exports and not enough on domestic demand.

Mr. Weidmann said, however, that the high surplus “is not the result of protectionist economic policy measures, and that the recent rise is caused, not least, by the devaluation of the euro” and the fall in energy prices.

“Moreover, it should be noted that a surplus country—in contrast to a deficit country—is not at risk of being corrected abruptly, and is therefore less vulnerable,” he said.

The German central banker took a musical approach to illustrating a point he has made before that in Europe the balance between “liability”, essentially countries bailing each other out, and shared decision-making and surveillance, or “control”, isn’t where it should be. He recalled the Frank Sinatra song “Love and Marriage,” saying “while some would argue that love and marriage are separable concepts, it really is an illusion to separate liability and control without undermining the stability of monetary union.”

“And there is no getting around the fact: a combination of national sovereignty and common solidarity can pose a risk to the stability of our monetary union,” he added.

“Creating a fiscal union—that is, centralized decision-making in the fiscal realm — combined with fiscal transfers or mutual liability in the form of eurobonds could make [the eurozone] less vulnerable,” he said. “The balance between control and liability would be restored.”

“Creating a fiscal union—that is, centralized decision-making in the fiscal realm — combined with fiscal transfers or mutual liability in the form of eurobonds could make [the eurozone] less vulnerable…The balance between control and liability would be restored.”
Yes, the balance between “control” and “liability” would restored if only the eurozone could set up a system where the wealthy nations basically become the permanent Troika for their weaker neighbors. Behold the balance!

So might the newly proposed eurozone “fiscal board” accomplish what Weidmann has in mind? Of course not. Instead of the right to financial sanction members that violate the eurozone’s budget rules, the new fiscal boards needs more independence from the European Commission and compulsory powers. But since that’s not politically feasible at this point, Weidmann proposes basically what Wolfgang Schaeuble proposed: set up the new ‘fiscal board’, but make it independent from the European Commission to remove ‘political pressure’:

A proposed European advisory board to assess national budgets is not strong enough and the euro area needs a fiscal authority with greater powers, Bundesbank President Jens Weidmann said on Thursday.

The body proposed by the European Commission would work too slowly to rein in spendthrift governments and would not have enough power to ensure the Commission respected its recommendations, Weidmann said in prepared remarks in Lisbon.

“This does not bode well for the objective of a more depoliticized application of the rules,” said Weidmann, who also sits on the European Central Bank’s rate-setting Governing Council. “For that, a fiscal council needs to be truly independent, and its recommendations need to carry weight.”

The euro zone has struggled since its inception to find ways to make its member states observe budget rules intended to help them live within the constraints of a shared currency.

The advisory European Fiscal Board was proposed in October with members completely outside the Commission, whose critics say it has bowed to pressure to be more lenient with major countries such as France than with others.

Weidmann said that a powerful authority is needed because the euro area’s risk-sharing arrangement reduces the incentive for sound fiscal policy.

A fiscal union with compulsory centralized decision-making would make the euro zone less vulnerable but there is not enough political support for such a move, Weidmann said.

The best viable option would be to keep economic and fiscal policy decisions at the national level with an independent oversight body that could take some of the political pressure off the European Commission, Weidmann added.

“The best viable option would be to keep economic and fiscal policy decisions at the national level with an independent oversight body that could take some of the political pressure off the European Commission, Weidmann added.”

Yep, in the future eurozone, the fiscal decisions, which are some of the most political decisions a democracy can make, are about to be overseen by a new European Commissions agency with the power to sanction “wayward” members that don’t keep their deficits below 3 percent. And if Berlin gets its way, that new overseeing commission is going to be politically independent. So we’re about see the politics taken out of fiscal policies at the national level across the eurozone (at least for the weaker nations), and possibly removed from the supranational level too. Have fun with that.

Some sort of big joint EU response to the Brexit designed to reinvigorate the European project and give EU citizens a sense of shared purpose and unity is something that we should probably expect at this point given the growing pro-“exit” sentiments across Europe. But if the sentiments expressed by EU leaders in the article below are any indication of what specifically to expect, we should mostly expect a bunch of happy talk and that’s it:

Reuters

Europe launches reform ‘reflection’ after Brexit shock

BRUSSELS | By Noah Barkin
Wed Jun 29, 2016 11:05am EDT

Hoping to stave off a broader political crisis after Britain’s shock decision to leave the EU, European leaders agreed on Wednesday to spend the next nine months developing proposals for an overhaul of the bloc amid deep divisions between its members.

Disillusion with the EU has risen sharply following years of economic weakness and after a record influx of refugees and series of deadly attacks by Islamic militants.

The problems have fueled the sense that elites in Brussels and other European capitals are ineffective and out of touch with the concerns of ordinary people.

Last week, the anger bubbled over in Britain’s Brexit vote, which threw six decades of closer European integration into reverse and raised fears of a domino effect on the continent, where anti-EU, xenophobic parties are on the rise.

EU leaders, who met on Wednesday without Britain, agree that change is needed. But they also know that time is required to get the remaining 27 members behind a common European initiative due to a deep divide over what lessons to draw from Brexit.

German Chancellor Angela Merkel, speaking to reporters at the end of the summit, said it was unrealistic to consider radical changes, such as moving towards a fiscal or political union, in the current environment. These would require changes to the EU’s Lisbon Treaty and more referendums, which leaders are desperate to avoid.

“It is not about more or less Europe but about delivering better results,” Merkel said.

“Our citizens often don’t understand why we are doing something and what our goals are. All of us want to change this. It is not about changing the EU Treaty, about introducing more laws or less. It’s about delivering on our goals.”

Officials said that Dutch Prime Minister Mark Rutte, who holds the rotating presidency of the EU, had made clear to other leaders that it was not the time for “revolutions”.

Another top official acknowledged that vague pledges to create a “better Europe” were largely empty but that the main priority for now was to send a simple message that everyone around the table could agree on.

EXISTENTIAL

The period of “political reflection” will start in earnest in mid-September at a summit in Bratislava, Slovakia. Some EU leaders have said the goal is to reach a set of proposals by March of next year, the 60th anniversary of the EU’s founding Rome Treaty.

The period mirrors the one that followed French and Dutch rejections of a European constitution in dual referendums in 2005. Merkel came to power the same year and led negotiations on the more modest Lisbon Treaty.

But the current crisis is more existential for the EU because of the Brexit vote, which in one fell swoop deprives the bloc of one of its only economic and political heavyweights.

Years of crisis have also left deep scars among member states and there is very little agreement about what the changes should entail.

Poland, Slovakia, Hungary and the Czech Republic have called for the powers of the European Commission to be reined in following Brexit.

Politicians in France and Belgium have suggested that a core of like-minded member states press ahead with deeper integration in a “multi-speed” Europe.

And German Finance Minister Wolfgang Schaeuble appears to favor stricter budget rules, an idea that would infuriate southern European countries which are struggling to cope with high unemployment after years of austerity.

A poll by the Pew Research Center earlier this month showed support for the EU plunging in its biggest member states.

The fall was most pronounced in France, where only 38 percent of respondents said they had a favorable view of the EU, down 17 points from last year. Favorability ratings were also down sharply in Spain, at 47 percent, and Germany, at 50 percent.

…

“Another top official acknowledged that vague pledges to create a “better Europe” were largely empty but that the main priority for now was to send a simple message that everyone around the table could agree on.”

That’s inspiring. Almost as inspiring as Wolgang Schaeuble proposal for stricter budget rules. Another way of say Europe needs more austerity in response to the Brexit. That should do wonders for the anti-EU sentiments.

The foreign ministers of France and Germany have proposed creating a “European superstate” limiting the powers of individual members following Britain’s referendum decision to leave the EU, Polish public broadcaster TVP Info has reported.

TVP Info said the proposals would mean members of a superstate would in practice have no right to their own army, to a separate criminal code or a separate tax system, and would not have their own currency.

In addition, TVP Info said, member states would lose control over their own borders and procedures for admitting and relocating refugees.

Polish Foreign Minister Witold Waszczykowski told TVP Info: “This is not a good solution, of course, because from the time the EU was invented… a lot has changed.

“The mood in European societies is different. Europe and our voters do not want to give the Union over into the hands of technocrats.

…

Martin Schaefer, a spokesman for the German foreign ministry, said: “Berlin does not want superstate, it wants a better Europe.”

Meanwhile, Waszczykowski said later on Monday that the document by Germany and France was drawn up before the Brexit decision. He said it included “old ideas” and “does not take into account what happened during the… referendum.”

“TVP Info said the proposals would mean members of a superstate would in practice have no right to their own army, to a separate criminal code or a separate tax system, and would not have their own currency.”

Yeah, pushing a ‘superstate’ plan would probably ruffle some populist feathers right now. As Poland’s foreign minister acknowledged, it appears to have been a plan drawn up before the Brexit decision and Germany’s foreign ministry spokesman appeared to to be distancing his ministry from the idea. So if there is a ‘superstate’ plan that’s still in effect post-Brexit, it sounds like the kind of plan that the planners plan on not publicly discussing for the time being.

Still, it’s not an entirely implausible behind-the-scenes plan to be discussed by EU leaders at this point since a major existential crisis like the Brexit is potentially the kind of crisis that could catalyze the adoption of such a plan in the same way the eurozone financial crisis catalyzed many of the neoliberal “structural reforms”/austerity policies that helped fuel the prevailing anti-EU sentiment to unprecedented levels. So if there really is a strong desire held by at least some EU leaders to create a ‘superstate’ soon, right now is a logical time to do it. Or at least test the waters.

At the same time, as Poland’s foreign minister indicated, a ‘superstate’ push is pretty implausible in a post-Brexit environment in part because a more tightly integrated Europe that entails an even greater loss of sovereignty is exactly the kind of change that could push even more populations toward the nearest “-exit”. It’s a tension that highlights one of the greatest challenges the EU faces today: a “United States of Europe”, where you don’t have a handful of powerful nations effectively running the place but one big “we’re all in this together” European nation and regular fiscal transfers from rich to poor member stats, really is one of the most effective means for ensuring the long-term socioeconomic stability of a united Europe.

But in order to implement a truly functional “United States of Europe”, it isn’t just the national sovereignty that needs to be formally sacrificed and pooled together. The informal super-sovereignty that comes with being the most economically powerful member states, currently Germany and to a lesser extent France, is also going to have to be sacrificed along with a lot of these wealthier members’ wealth because that wealth is going to have to be redistributed if the economically united Europe is going to function. You can’t have an EU where whenever there’s a major crisis the first question on everyone’s mind is “what will Berlin do because it holds the biggest purse strings?” That’s not a foundation for a viable united Europe.

Are the voters and elites of the EU’s wealthy states prepared for that kind of structural reform? Truly pooling power with an EU parliament and moving away from a model of backroom negotiations where super-sovereignty reigns supreme? Supporters of the European project had better hope so, because it’s going to be absolutely necessary.

With next year’s French elections looking like it will come down to a second round runoff between Marine Le Pen and whoever The Republicans (the new name for the conservative UMP) nominate, it’s probably a good time to take a look at what grand ideas the various Republican candidates have in mind for jump starting the European project. It sounds like most of the Republican candidates agree on a core Républican plan: 1) the EU should reform Schengen and give each country has more control over its borders; 2) Europe should get its own version of the International Monetary Fund (presumably because the IMF hasn’t been pro-austerity enough satisfy the Conservatives, which is appalling); 3) the European Commission should write even fewer laws; 4) national parliaments should be able to veto them all; and, 5) The EU should stop expanding.

But there are still plenty of differences. The current front-runner, Alain Juppé, called for a new round of treaty changes and a EU-wide referendum, but cautions that neither would happen before France regained credibility as an economic force in Berlin’s eyes. So the current Republican front-runner is offering big reforms, but not before there’s a lot more austerity and not unless the austerity works (Le Pen must be hoping Juppé stays in the lead).

Former president Nicolas Sarkozy might have the most ambitions agenda. It appears to involve creating a new eurozone President. But all eurozone citizens won’t vote for this president. Instead, it will rotate between France and Germany. Yep.

So if Sarkozy gets the nomination, it’s looking like French voters will be choosing between the far-right National Front that wants to see France leave the EU, and the Republican party with an agenda to make France a permanent co-president of the eurozone. And the primary season has yet to really begin so this is probably just a taste of the big bold EU reform plans that we’re going to hear over the next year. And in all cases there’s probably going to be a lot more austerity because this is the Republican party and that’s their thing. It’s one more reason to dread next year’s elections in France:

Politico.eu

The French Right’s plan to save Europe: More France

Nicolas Sarkozy and his conservative rivals are all imagining the future of the EU.

By Nicholas Vinocur

7/1/16, 5:29 AM CET

PARIS — With Europe in crisis, much of the EU is looking to its de facto leaders, French President François Hollande and German Chancellor Angela Merkel, for answers on how to fix the bloc and fend off a post-Brexit breakup.

But if polls are to be trusted, at least one half of that duo could be out of power by the time serious talks on EU reform begin.

Hollande is as unpopular as ever, and may well not run for re-election. If he does, all current surveys suggest he would be knocked out in round one of a presidential election, opening the way for a center-right president in 2017.

Which means the burden of imagining the EU’s future would fall to one of Hollande’s conservative rivals: Nicolas Sarkozy, Alain Juppé, François Fillon or Bruno Le Maire — the top four contenders in a primary to elect the center-right presidential candidate.

How does France’s conservative establishment see the bloc’s future? In a nutshell: smaller, narrower, weaker and more national.

After a seminar at Les Républicains (LR) party headquarters this week, Sarkozy spelled out five points for EU reform that one of his backers said were “totally consensual” (never mind that Le Maire and Nathalie Kosciusko-Morizet, also a candidate, did not bother to show up and brainstorm).

The Républicain plan en bref: 1) the EU should reform Schengen, so each country has more control over its borders; 2) Europe should get its own version of the International Monetary Fund, to avoid being “on its knees before the United States”; 3) the European Commission should write even fewer laws; 4) national parliaments should be able to veto them all; and, 5) Europe’s “never-ending” expansion should, well, end.

Beyond those bullet points, however, the consensus fades. Each contender for the nomination has his or her own custom-built plan for the EU’s future. And now that Brexit has made the EU a fashionable topic again after a long period during which it took a back seat to France’s diminished economic stature, all are determined to hawk their wares as loudly as possible.

Fixing Europe is ‘up to us’

Take Sarkozy. Ostensibly, the LR party chief should stick to the five points, since he is not an official primary candidate. But, at a meeting with French voters in London Wednesday, he went far beyond the party line, arguing for deep changes and a starring role for France. “In ten months,” he said, referring to France’s presidential election, “[the job of fixing Europe] will be up to us.”

How? Via a rapid treaty change — an option rejected Wednesday by EU leaders — and a brand-new eurozone presidency that would switch back and forth between France and Germany, he said, “because they represent half of the eurozone’s economic activity.” And the other members of the single currency? “Too bad if I anger the small countries!” Le Figaro cited him as saying.

There is more. While Sarkozy treads carefully due to his role as party chief, he is road-testing more radical ideas via others, notably LR vice president Laurent Wauquiez. At the top of this B-list is killing off the European Commission.

“We can no longer allow an administrative body to make legislative proposals,” Wauquiez told the National Assembly Tuesday. The idea provoked cries of “populist!” and a stern rebuke from Socialist Prime Minister Manuel Valls. But it was no throwaway. A day earlier another Sarkozy compadre, Guillaume Larrivé, was giving it airtime on TV, saying the Commission needed to be replaced with a “Secretariat of Nations.”

If the idea sticks, Sarkozy may well snatch it up for himself.

On the opposite side of the spectrum, there is Juppé. Currently favored to win the November Républicain primary, and then go on to become president, the former PM has carved out a Europhile niche for himself in an increasingly Euroskeptic party.

On June 27, he wrote on his blog that Europe needed to get more political, while France should “merge [its] capacities with the countries with whom we share a worldview and civilizational values.” A treaty change was necessary, he argued, and so was an EU-wide referendum to approve it. But neither would happen before France regained credibility as an economic force in Berlin’s eyes.

In other words, under Juppé the EU would be in for more of the same.

On the side of ex-prime minister Fillon, the tone is more Euroskeptic. The fourth man in the race, behind Sarkozy, Juppé and Le Maire, Fillon wants to narrow the EU’s legislative scope drastically.

In the future, he wrote in an op-ed for Le Monde, “I want Europe to intervene in a limited number of areas, and when it has an explicit mandate from nations and peoples… subsidiarity and flexibility would take precedence over today’s uniformity.”

Finally, there is Le Maire, the former agriculture minister who told POLITICO in May that France needed a referendum of its own to reset its troubled relationship with the EU. Like David Cameron’s failed gamble? Or Marine Le Pen’s “Frexit” pledge? Not at all.

“My referendum is the exact opposite of the one being proposed by David Cameron,” Le Maire said. His would be a “positive” plebiscite, with no option of leaving the EU, only signing on to a package of reforms. If it failed, no problem, because his referendum would be consultative, or non-binding for the government.

…

“Beyond those bullet points, however, the consensus fades. Each contender for the nomination has his or her own custom-built plan for the EU’s future. And now that Brexit has made the EU a fashionable topic again after a long period during which it took a back seat to France’s diminished economic stature, all are determined to hawk their wares as loudly as possible.”

That’s right, in the post-Brexit environment, comparative visions for EU reforms are a guaranteed major focus on upcoming elections across the EU. Especially in a country like France, where talk of establishing a Franco-German eurozone presidency is apparently something mainstream politicians do these days:

…

Take Sarkozy. Ostensibly, the LR party chief should stick to the five points, since he is not an official primary candidate. But, at a meeting with French voters in London Wednesday, he went far beyond the party line, arguing for deep changes and a starring role for France. “In ten months,” he said, referring to France’s presidential election, “[the job of fixing Europe] will be up to us.”

How? Via a rapid treaty change — an option rejected Wednesday by EU leaders — and a brand-new eurozone presidency that would switch back and forth between France and Germany, he said, “because they represent half of the eurozone’s economic activity.” And the other members of the single currency? “Too bad if I anger the small countries!” Le Figaro cited him as saying.

There is more. While Sarkozy treads carefully due to his role as party chief, he is road-testing more radical ideas via others, notably LR vice president Laurent Wauquiez. At the top of this B-list is killing off the European Commission.
…

“Too bad if I anger the small countries!”

So Sarkozy’s plan to address EU-wide angst is to devolve EU powers and make Germany and France the eurozone co-kings. Wow.

Keep in mind that it’s not insane to consider simultaneously devolving the EU while further integrating the eurozone. They are two very different critters in terms of what is needed to keep them functioning. If the EU is a giant free-trade that’s going to be tricky, but not nearly as tricky as a giant shared currency zone like the eurozone. All indications are that the eurozone requires more burden-sharing and general integration if it’s going to function. And a lot less austerity. The EU, on the other hand, has recently because an EU-wide tool for austerity with things like the Fiscal Compact and things like that can and should be rolled back. If the EU devolves, it’s probably not a disaster. If the eurozone doesn’t integrate further, it probably is a disaster. But if it integrates in a manner that makes it less democratic and just a Franco-German (and most German) vassal-state, that’s one of the worst outcomes imaginable for the Europe project.

Also keep in mind that the Socialists, the party that should be leading the fight in France for sane future, is basically out of the running because it’s current implementing and defending an EU-directed neoliberal agenda that it doesn’t really have an option to not implement. Hollande’s government has Stockholme Syndrome, leaving the Republicans like Nicholas “Too bad if I anger the small countries!” Sarkozy or Marine Le Pen to take over. Again, wow.

As we can see, while the post-Brexit identity crisis is indeed a rare opportunity for the European project to address its insanities reimagine itself for the real challenges of the 21st century, there’s no reason it can’t get crazier!